Giving your child an allowance should be more than a weekly transaction. It’s a valuable, low-stakes teaching tool about the power and value of money. Use the following as a guide to establish that all-important weekly allowance for your child.
Should your child's allowance be linked to chores?
The first thing to consider is whether household chores are the trigger for an allowance. There are a few schools of thought around this.
Some childhood experts say it’s a mistake to tie the allowance with basic chores, because that trains kids to find their motivation through rewards. It’s better to involve kids early with household chores, and later provide a no-strings-attached allowance.
But to many, doling out an allowance for nothing in return just doesn’t sit right. How else do you instill the value of putting in a good day’s work to earn a paycheck?
Whichever approach works best for your family, it’s important to make those payments with a purpose. This is your chance to instill valuable financial lessons they can take with them into adulthood.
Give support when your child has a big savings goal
If your child is hankering for a big-ticket item, giving them a chance to work and save toward it lets them reap the rewards of delayed gratification and goal-setting. What’s better than discovering they do have it in them to achieve a lofty goal that seemed impossible in the beginning?
Once they set their goal, give the child a special place to store the cash, along with a means to track their progress. Provide a small notebook, and grade school children can work in some real-world math practice. Help them:
- Track their earnings. They’ll learn the satisfaction of watching that total grow over the weeks.
- Calculate how much they have left to save.
- Forecast the date when they’ll reach the goal. Are they closer this week? What can they do to achieve their goals more quickly?
Once they’re close to reaching their goal, you can also show them how to shop for the best deals. Sit down at the computer together and comparison shop. Keep an eye out for a great sale. This can shave several weeks off their timeline, letting the smart shopping lesson hit home.
Prepare your teen for the future by letting them manage their expenses
In that space between middle school and their first car, upgrading the allowance can offer more real-life practice with money management. While pleasure spending has its place, the allowance can also be used as a resource to meet their needs. Put your child in charge of one spending category, adding more as time goes on. Yes, it will probably require a higher dollar amount than their childhood allowance. But they’ll gain practice in balancing their wants and needs. To help them get started, show them how to plan for and manage their expenses.
Here are a few “pre-car” expense categories teens can handle:
- School supplies
- Entertainment and outings with friends
- School activities and trips
- School lunches
Promote the saver's mindset in your child early and often
One tool every kid with an allowance needs is a savings account, so you can instill the habit of saving for the long term.
Some parents start by requiring kids to place at least half their earnings into savings, whether it’s the weekly allowance, a cash gift from Grandma, or an offering from the tooth fairy.
When your child is grown, that money will be there for them to get a good start in life. Invest a portion in a Roth IRA or a 529 College Savings plan. The rest can be used for something big, such as a major class trip, their first car, or the deposit for their first apartment. Along the way, show them their balance, and how their accounts are performing.
A savings account from Minnwest Bank makes it easy and cost-free to automate any savings plan for your child. For example, if your child earns $10 a week allowance, give half in cash and set up a $5 automatic weekly transfer from your account to their savings account. With no monthly fee whatsoever for children under 18, they'll get the full satisfaction of watching their money grow.