Provided by Avi Ashkenazy
Childhood is full of milestones. First step, first word, first day of school, first job, first date. These milestones are important not only in and of themselves but for what they say about the family’s focus and values. Are we paying attention to each of these milestones, proudly recording each one of our child’s “firsts”? Are we sitting down with our children and discussing our expectations for each new stage of their lives? Are we making the commencement of each stage a teachable moment?
Some consider the age of seven to be the “age of reason”—the time when a child is capable of acting responsibly. At some point thereafter, parents have to decide if they want their child to be responsible for handling money. Should you give your child an allowance?
An allowance can help your child learn money-management skills. It’s an opportunity to learn budgeting and delayed gratification. Perhaps best of all for parents, an allowance can reduce nagging and whining: children don’t have to beg for toys and treats, because they’re in control of their own spending. But all these wonderful results can only be achieved if time is taken at the outset to lay down some ground rules.
If you decide to give your child an allowance, sit down with him or her and go over a few simple points. Even better, write down the rules in the form of a contract and have your child sign it. If disagreements arise, just refer to the contract!
Here are some points to consider:
When should you start? Your child should be able to understand what money is for and have had a little experience with purchasing things. The beginning of the school year is a good time to start, or perhaps on the child’s birthday.
How much should be given? The amount depends on the child’s age, the family’s budget, what the allowance is supposed to cover, and what’s usual in the community. A potential rule of thumb is a dollar for each year of the child’s age.
What does the allowance cover? For young children who don’t have a lot of experience with money, an allowance should be mainly for discretionary spending: items like toys and treats. An eight-year-old can’t be expected to budget for a year’s worth of school clothes, for example. Be sure to discuss with your child whether he or she is expected to pay for lunches and snacks at school, movies, gifts, and so on.
Should kids be expected to save? Give to charity? Encourage your child to save at least 10 percent of the allowance in order to be able to afford larger purchases down the road. As an incentive, consider matching dollar for dollar whatever your child decides to save. Also discuss giving to charity. Explain which causes are important to you, and why. They may choose to follow your lead or support a personal interest.
Should you pay for chores? Some families tie allowances to chores in order to show youngsters that money needs to be earned. Others feel that certain chores are a child’s responsibility as part of the family, and that kids should not expect to be compensated for them any more than parents are compensated. You might consider giving your children an allowance with no strings attached but occasionally giving them the opportunity to earn extra money by doing your chores for you or helping with big jobs like spring cleaning or leaf raking. If you don’t like the idea of paying cash for these bigger jobs, consider some kind of reward at the end, such as a family outing.
Whatever rules you decide on for your child’s allowance, it’s important to be firm and consistent in enforcing them. Don’t cave in to every plea—allow your child to make small mistakes and suffer the consequences. Periodically review the allowance contract you’ve drawn up—once a year, perhaps—and make adjustments befitting your child’s age and increased responsibility. As your child approaches the teen years, consider a separate clothing allowance. Whatever you do, remember the thrill of having your own money when you were younger. Take the time to teach your child good spending habits, and you’ll instill that same pride and enjoyment.
Short- and long-term finances for children—and adults. As your children learn to make choices with the money available to them, consider thinking about the choices—both short and long-term—you are making regarding to your household’s finances. To learn more or to access helpful materials, speak with a local financial professional or visit www.massmutual.com/family. v
© Massachusetts Mutual Life lnsurance Company, Springfield, MA.
Avi Ashkenazy is a financial representative with Lee, Nolan & Koroghlian, LLC, a MassMutual Agency. He can be reached by telephone at 646-867-8311, 917-767-9053 (mobile) or e-mail: firstname.lastname@example.org.