How an Allowance Can Help Teach Kids About Money
Teaching kids the value of a dollar and the importance of saving can help set them up for a future of financial freedom. Giving your children an allowance and teaching them to manage it can be a good way to start talking about financial literacy. While you prepare to get started, consider these tips to help you set boundaries on giving an allowance.
Set Expectations Up Front for You and Your Child
If you plan to give your child an allowance, there should be responsibility tied to it to teach them about money. You want them to know, in order to earn money in life, they have to work for it. Chores are a good place to start. Whether it’s cleaning their room or picking up after the dog in the yard, if they don’t do the job, they should not receive their allowance.
You might say this is the earliest form of teaching contract negotiations. This can happen as soon as a child starts to understand value and that you can’t just go to a store and take something. You must pay for it, and to pay for it, you must earn the money.
Consider Using a Digital Option for Older Kids
Allowing your older kids to use a money saving app with their allowance is a good idea, but make sure it’s tied to a checking account with online features and abilities. This will encourage them to monitor their checking account, see how much money they’ve earned, and help them understand how to use it. Learning how to use their bank’s mobile banking features will be important as they get older and start making more money.
At PlainsCapital, kids must be 12 years old to have a checking account. But a savings account can be opened as early as birth, as long as the child has a social security number. A savings account can be a great way to teach your kids about money.
Encourage Creative Ideas to Earn More Allowance
As a parent or guardian, you should decide up front the maximum amount of allowance that your child can earn. You may not start at this top number, but you can use a cascading effect. For example, if the child does basic chores, they may earn a certain amount of allowance. But for every additional chore they do that week, you may add more to the allowance.
This encourages them to put in more work to see more reward. It’s preparing them for the real world. If they want more money, they may have to work harder or put in more time to earn it. But also remember, you’ve set a maximum amount for allowance. Make sure the child knows this limit and how they can earn it.
Teach Kids to Save by Helping Them Set Achievable Goals
Setting attainable goals will give your kids something to save for. At the beginning of the year, you may consider asking your kids what they want to work toward buying. Figure out when they want to be able to purchase this item. Three months? Four months? Help them set up the savings plan based on their allowance. Give them actual dates and plans to see how quickly they want to save in order to reach their goal.
This strategy lets them decide how important the item is. Do they want to wait and save slower? Or do they want to pinch their pennies and reach the goal faster? This is teaching them the beginning stages of budgeting.
Allow Them to Make Mistakes
This may be one of the most important factors in teaching children about money. Allow them to fail. It’s a big lesson. If they don’t fail, they aren’t trying. If there are no repercussions for their actions, your children may take this mentality into their teenage years and adulthood. For example, let’s say they don’t save enough money to earn the item they want. Bailing them out or loaning them the last bit of money they need doesn’t teach them the importance of saving. Understanding that there are consequences for their actions is extremely important.
Opening a savings account for your child, or a youth debit account, is valuable. Parents should sit down and talk to their child each month about how much money they have in their checking account and how much they have in savings. Ask them what they spent their money on. These short conversations can open their eyes to see where they can make changes so they have more money next month. Parents and children can visit PlainsCapital’s website to learn more about PlainsCapital’s Youth Debit Account and how to get started teaching financial responsibility.