What do you do when your kids start asking you for money and you want to teach them about financial habits?
Person putting coins in the hand of a girl / Reference image / Pexels
LatinAmerican Post | María Fernanda Barinas
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Allowance is considered by many as a great way to teach children about money and financial habits. However, when it comes to giving it many questions arise about the correct way to do it. Giving a child a weekly amount of money can help him create responsible habits, or it can become a headache, depending on the terms that parents establish.
Leer en español: Primeras enseñanzas para el manejo del dinero: ¿cómo lidiar con la mesada de sus hijos?
For it to be a useful tool and an enriching experience for children, you have to think about factors such as the child's age, the amount of money that is given and the conditions that children must meet to receive it.
Regarding age, Elaine Miranda, an expert in personal finance, told BBC that the most appropriate thing is to "start when they learn to add and subtract, that is, after they are six years old." If done before, children will not understand the simple mechanisms to manage money, and if it is done later, they may focus mainly on spending, without thinking about creating a management or saving habit.
"Many parents tell me they do this when their children are teenagers and then they find out that they spend all the money on the first day," explains Miranda. The explanation for this is that young people reproduce consumption patterns. Being in a society that encourages spending all the time, young people can be driven mainly by the impulse to buy products instead of being interested in managing money responsibly.
Regarding the amount of money, according to the study "The Kids Allowance Report" by the company Rooster Money, the money average that children between 4 and 14 years in the US receive for allowance is US$ 8.74 weekly or US$ 454 yearly, including both the allowance and the gifts in money they receive on birthdays and special dates.
However, depending on the age, the average money varies: parents usually start with small amounts of money, and as the child grows the allowance increases. Thus, the allowance starts around US$ 4 per week and when the child reaches age 14 they receive US$ 13, an average increase of one dollar each year.
Although these figures depend heavily on the socio-economic context of families, they help to measure the amount of money our children actually manage.
The ability to create habits
When it comes to conditions, one of the main questions that parents come up with is whether the child should perceive the allowance as a "reward" for doing certain tasks at home. Liz Frazier, author of the book Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids about Finance, talks about it and proposes three ways to handle the allowance.
The first is chore-based allowance, in which the child earns the allowance in exchange for different chores at home: helping to wash the dishes, making the bed, among others. The advantage of this modality is that children acquire responsibilities at home through the allowance and thus learn that money is earned thanks to their effort.
However, Frazier says, this approach can also have negative effects, because, instead of committing to household chores, the child can begin to see them only as a way to get money and will believe that he should always be rewarded for tasks that he should do any way.
The second form is pure allowance: the child is given a weekly amount of money without there being a relationship between tasks and reward. The child receives the allowance and, regardless of that, the parents demand that he performs certain chores at home, not because he is going to earn money for doing them, but because it is his responsibility as part of the family.
Those who are against this modality say that giving an allowance without relating it to the fulfillment of tasks can make children believe that they will always have "free" money, and that they will not understand the relationship between hard work and reward.
Find the balance
Finally, Frazier proposes a mixture between the two modalities, in which the child is given a quantity of money unrelated to the fulfillment of chores at home. At the same time, the parents demand that he or she performs a number of main chores, because it is her or his responsibility to be part of the family, and, apart from these, they give them the possibility to perform other chores to earn extra money.
The important thing, according to the author, is that regardless of the modality chosen by the parents, the child should understand clearly under what conditions the allowance will be received, in order to avoid problems in the future.
Finally, the author gives some advice to make the allowance a useful tool for children. Some are:
Be consistent: so that children can acquire a sense of responsibility and commitment through allowance, it is necessary that parents establish it as a commitment between them and the child.
Advise them on the way they save and spend the money: it is important to help them set goals through savings. For example, if they want a toy, explain them how much time they must save in order to buy it and what is the best way to save money so that savings are effective.
Do not use the allowance as a punishment: it is common that when children misbehave parents take something from them to punish them. However, if the allowance is expected to be a useful tool for the development of your kids, it is better to use other punishments such as taking away toys or forbidding them of using electronic devices.