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  • Northeast Wisconsin
  • January 2018
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Use allowances to teach children about money

What do you want your children or grandchildren to know about money? Many parents have used allowances to teach their children financial responsibility. 

Allowances can help children learn: 

  • Our spending choices are almost limitless
  • We have limited resources
  • We all need to make choices
  • From spending mistakes they make

By age 5 or 6, many children are ready to receive an allowance. Children are often required to work or do some things around the home to earn their allowance. They learn there is a connection between working and getting paid. 

Of course, there’s more to handling money wisely than just earning money and spending it. Parents can use an allowance to help children learn to make choices and save money. 

Parents can set guidelines for saving, spending and sharing. For example, let them spend 40 percent, require them to save 50 percent and to share or donate 10 percent of their allowance.

Many parents wonder how much they should pay their children. A common guideline is to pay 50 cents or $1 for every year of their age. So, a six year old would get $6, a ten year old $10, etc. As they age, they get paid more and have more to manage. Some parents pay their children every time they get paid; others pay allowances once a month. 

Some children handle money better than others. Many will make mistakes, like buying things immediately with their spending money, and then being out of spending money until they get paid again. Let them run out of spending money and learn that timeless lesson, “Once I spend my money it’s gone.” Don’t rescue them with more spending money. Making mistakes with small amounts of money can be a priceless way to learn enduring lessons. 

To encourage saving money, talk with them about how you are saving for a short-term goal, like some clothes or electronics. Tell them you also save for your long-term goals like retirement. 

Even if you do most of your banking, shopping and bill paying digitally, occasionally take younger children to the bank. Let them see you putting money into the bank, not just taking money out or spending money. 

You can also help develop the habit of saving money by: 

  • Using a piggy bank or other visual savings tool
  • Opening a savings account in their name
  • Having them make regular deposits into their savings account
  • Showing them how their balance is growing 

If you want your children or grandchildren to understand some of the key financial facts of life, help them learn when they are young. An allowance coupled with good parental guidelines can help them learn wise financial habits that will serve them throughout their lives. 

 

Alan Prahl

Alan Prahl is the Education Leader with FISC, the Financial Information & Service Center. He has an undergraduate degree from the University of Wisconsin in Madison and law degree from Hamline University. A nonprofit program of Goodwill NCW, FISC provides financial counseling and coaching, including a no-cost, no obligation 30-minute consultation with the “counselor on call.” To learn more, call 920-886-1000 or visit www.fisc-cccs.org.

Website: www.fisc-cccs.org
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