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October 12, 2006
Teaching Your Kids About Money
At some point, you'll have to deal with the question of whether to give your children regular allowances and, if so, how much. According to various surveys, only about half of all families pay allowances to their children. Of those that do pay allowances, the majority do so weekly.
We did it for our children, and encouraged them to supplement their income by doing extra chores. I don't think it worked all that well, and it appears our children don't think so either since they're experimenting with other techniques now that they're parents themselves.
Our oldest daughter's family used the allowance concept for a while, but then abandoned it after they discovered that one of their kids was spending everything on hot dogs and ice cream. They've now moved to a "money on request" system, which requires the child to explain why the money is needed.
This gives the parents more control and enables them to turn down requests if the money is going for unhealthy foods or some other undesirable purchase.
If you decide to give your children an allowance, ask for an explanation of what they intend to do with it. It's also a good idea to encourage them to put part of the money towards savings, although this may prompt a complaint along the lines of, "It's my money so why can't I spend it like I want to?"
The way around that is to decide in advance how much of an allowance you want to give. Let's say it's $5 a week. Tell the child that his weekly allowance will be $4, plus you're going to add an extra dollar a week to his savings. This creates the impression that he's getting a bonus. In fact, you're really implementing a forced-savings program. You decide what the percentage will be.
You may want to put certain conditions on the allowance, but you need to be very careful if you do. For example, you may tell the child that part of the allowance must be used to pay for school lunches. The danger is that he'll skip lunch so that he'll have more to spend on things he really wants.
As the child grows older, the allowance should increase, but don't just raise it every year automatically. When the time to review the allowance approaches, ask the child to account for how the money was spent over two or three weeks. See if he really needs more, or if a lot of the money is going for things you'd prefer he not have. Discuss the issue frankly. Remember that giving your child too much money may be asking for trouble.
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