Monday, May 28th, 2018
A recent Facebook post from an Atlanta, Georgia mother on how she teaches her 5-year-old daughter about money sparked a media frenzy.
The mom gives the little girl a $7 weekly allowance. From that she takes back $5 for rent, electricity, water, cable and food so her daughter learns the basic costs of living. The child keeps the remaining $2 allowance money to do with as she pleases.
Mom then deposits the $5 she takes back into a savings account for the child, who will have access to it when she turns 18 — when it will be worth over $3,380.
Some people raged on social media that the mom's money lesson was too austere. Others praised her for teaching her daughter about the true cost of living and saving for her future.
Though perhaps a bit extreme in approach, this mom's wish for her child to grasp basic money concepts is one that many parents share. An allowance serves as a valuable teaching tool to achieve this. By receiving regular amounts of cash to handle by themselves, kids learn basic financial skills like saving, budgeting, and planning their spending.
First-time parents may have questions about when to start giving an allowance, how much to give, how often and when to increase it. Should it be tied to household chores or given on its own merit? Should kids be allowed to buy whatever they want with it, or should parents impose some restrictions? When should parents stop giving an allowance?
Though the formalities vary according to a family's values, budget, and preferences, there are some common practices.
Experts suggest parents start giving an allowance around age five or six, using an age-based formula – a small amount multiplied by the child's age – and gradually increasing it as the child grows older. For example, you might want to give a 5-year-old child between 50 cents and one dollar per weekday. That would total $2.50 to $5.00 per week. For a 6-year-old, that could be $3.00 to $6.00 per week, and so on. You can find more information on the going rates here.
While a weekly allowance is common, some parents prefer to give it monthly. And some parents give their children the choice: a lesser amount once a week or a larger amount once a month. This has a dual benefit: The parent only has to pay out once a month, and the child learns how to stretch the money over a longer period.
Some parents insist on tying the allowance to household chores, but this could run contrary to the expectation that the family functions as a team, with each member required to contribute. If the child decides to forego the allowance to get out of doing chores, you could have a tricky conflict on your hands.
It may be more strategic if the allowance stands on its own. Kids can then focus more on learning how money works and how to handle it. Does that mean kids have free rein over their spending? It depends. If the child wants to spend it all on candy, parents might want to veto the purchase, depending on their own values and judgment.
There's no set time, but parents may want to consider stopping when their children reach a certain age or start earning their own money.
Whatever your method, consistency is key. Kids learn from their parents. If they see you as consistent and reliable in handling money — including your allowance giving — chances are they'll develop the same qualities in their own money management as they grow up.