Allowances can have an impact throughout a young person’s life by teaching basic financial knowledge and encouraging financial responsibility. Here are some common approaches that some families take towards allowances.
TYING ALLOWANCE TO CHORES, GOOD GRADES, OR BEHAVIOR
This approach rewards children for doing chores and putting effort into their schoolwork. The main benefit of this approach is that it teaches the concept that one must work as an adult to gain financial reward. However, some parents opt not to take this approach since there is some work in life (like chores or errands) that people must do even though they are not paid for it. In addition, parents must consider how they will handle it if their children would rather skip chores than earn an allowance.
ALLOWANCES THAT TEACH BUDGETING
Under this system, children are given a flat dollar amount each week or month and must manage it so that they can purchase the non-essential, luxury items they want, such as candy or a toy for younger children, a special pair of shoes or video game for an older child. Higher-priced items would require the child to save his or her allowance for successive weeks or months. The reward of purchasing what they want can instill positive savings habits as well as making them aware of what things actually cost.
Some parents choose not to give children allowances at all, but rather pay for necessities and then handle requests for non-essential items on a case-by-case basis. This approach encourages children to put some thought into why they want something and how it would impact their day-to-day life.
FINANCIAL LITERACY FOR YOUR CHILD
If you decide to give an allowance, think about how to encourage children to manage that money. Consider your family values and priorities. For example, you may want to encourage your child to save a portion in his or her SLFCU account, donate a portion to charity, and spend a portion. You can also involve your child in day-to-day financial tasks like budgeting for groceries or how much movie tickets and popcorn cost so that they develop a sense of what things cost when their parents aren’t paying for them.
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