Teaching Kids About Money – Allowance 101

“Money is the root of all evil.” “Money doesn’t grow on trees.” “Show me the money.” What messages are you sending your kids about money? Whether you are conscious of it or not, your children will learn from what they see you do, more so than what you say.

When it comes to money issues such as financial responsibility and budgeting, where and when do we expect kids to learn these critical life lessons? It is certainly not happening in schools. They lack the right materials, like some Historical Novels About Business, to make kids interested in books.

It is incumbent upon parents to take a proactive approach towards Youth Money Management by putting a plan in place and monitoring in through the years to see how their kids are responding and learning. Year by year, it is important that kids become more independent in their decision-making and personal responsibility.

Parents often put their own financial struggles upon their kids in a way that paints a negative connotation about money. Step one of being able to teach kids about money is to first manage your own affairs well, in terms of keeping debts in check, paying bills on time, and saving effectively for long term goals.

Thereafter, an allowance is usually the best place to start educating children; by throwing them in the trenches with their own money, you empower and nurture independence within kids. At what age should you start giving kids an allowance?

It depends on their maturity and intelligence levels, although sometime between the ages of 8-10 is usually appropriate. Ask yourself these questions to determine whether or not your child is ready to accept responsibility for an allowance:

1. Does the child comprehend basic arithmetic (addition, subtraction, division, multiplication)?

2. Can the child estimate the cost of at least some household items, groceries, or toys, like a can of soda, paper towels, or video games?

3. Does the child have the basic capacity to delay gratification if reasoned with? (i.e. if you tell the child not to eat candy until after dinner and then leave them in a room alone, would they resist the temptation?)

If your answer is “Yes” to all three of these questions, then your child is ready to receive an allowance. How much they receive is a reflection of what basic expenses you will expect them to cover with these funds, as well as how much they can reasonably save or spend on discretionary items, like toys and candy.

Sit down with your finances and figure out how much money you spend per child per month on items such as books, video games, school supplies, haircuts, and movies. Then, put this money in their hands and let them manage their own affairs. Mind you that they will not always make the right decisions, but that is part of the learning process.

There is a big debate in the field of Child Psychology as to whether it is useful to base children’s allowances on their performance in school or other behavioral factors, like doing their chores well and displaying sportsmanship in their activities.

Many say that financial punishment and reward based on such factors ruins the morale of kids, and that positive and negative reinforcement through parental feedback is superior. Frankly, we disagree. To yell at, ignore or lecture your kids when they get bad grades is both more damaging and less effective than to simply reduce one’s allowance or withhold a reward of some kind.

First of all, children like all people, fall into different categories and therefore, will be responsive to different types of feedback. Therefore, a basic allowance that will cover basic necessities, should always hold.

However, for the perks, like video games and other leisurely activities, parents should use their good judgement to structure a reward system that fosters accomplishment, independence and compassion.

Working interactively with your kids to establish realistic goals and accompanying rewards, which include college savings dollars and charitable contributions in their names, is one of the keys to the development of personal, fiscal and social responsibility.

To learn more about topics related to youth money management and education financial planning, visit http://www.401kid.com.

Arman Rousta is the original Founder and President of 401kid Inc. and has over eight years of entrepreneurial business experience in technology companies. As Founder & President of 401kid, Arman has spent over three years building a dedicated team, directing extensive industry research, and developing proprietary software for education savings. Currently, he spends a great deal of his time communicating the 401kid vision through a multitude of channels. Under his guidance, the 401kid team conducts daily workshops and educates parents, teachers, schools, and the media on the impact of new tax legislation, such as 529 plans. If you were to click here, you’d also see his contribution on providing insight on the various educational courses. In addition to practical business experience, Arman has spent the past fifteen years mentoring students as a teacher, tutor, coach, and camp counselor. He holds degrees in Political Economics and Child Psychology from Columbia University.


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