Financial literacy is an crucial aspect of adult independence. The Prudent Parent recognizes that it is important to teach children from an early age to live within their means.
You can start giving your child an allowance in preschool or elementary school. Assuming that you are paying for all of his necessities, one dollar per year of age per week may be a good starting point for an allowance amount.
Parents may want to require that some percentage of the child’s allowance go into a charity fund to be disbursed by the child to a charity of his choice. Ten percent is a common amount. Explaining to children from an early age that there are people less fortunate than they are and that those people need help will encourage them to continue this practice in adulthood. It is also a good idea to involve your children in your decisions about at least some of your own charitable giving.
Keeping money in a shoe box or a piggy bank at home may be fine while your child is in grade school, but once he’s in middle school, it is a good idea for him to open a joint savings account with a parent. While interest rates are so low as to be negligible these days, you can still explain how interest works and that there are places to put one’s money (once there is more of it) that will earn a better rate of return.
In addition to an allowance, children in middle school and beyond can also be given a budget for clothes, school supplies, and other essentials, and they can be in charge of deciding how to spend that money. Parents should make sure that the budget is sufficient to allow the child to purchase what he needs but not so great as to eliminate the need to make some difficult choices. Teach the child about shopping sales, comparing prices, and about which stores offer the best value for the money.
In my opinion, it is important that allowance not be payment for doing regular chores. Regular chores are the responsibility of everyone in the family, and no one should be paid for doing them. Allowance is simply the sharing of the family’s income among family members. Children can always be given the opportunity to earn additional funds by doing special chores, however.
Parents should not be too generous with additional funds over and above allowance. One of the reasons for giving the child an allowance is to help him learn to live on a budget. If the child believes that he needs a “raise” because his funds are not sufficient to meet his needs, then he can present that argument to his parents. To this end, children should not be given “advances” or “credit.” They must learn to save their money for things that they want. It is not a good idea to get them into the habit of living on credit.
Teens may be interested in investments, and if they are, involve them in the financial management of the household as well as in your investment strategies.
One more thing to note is that parents need to be aware of where a teenager’s money is going. Temptations such as cigarettes, alcohol, and drugs will be available to teens, and the parent should be aware of disappearing funds (thus, the need for a joint savings account, the balance of which you can check periodically).
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Resources
Alby, K. (2008). The Positive Parent: Raising Healthy, Happy, and Successful Children, Birth to Adolescence. NY: Teachers College Press..
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