- Date : 18/11/2019
- Read: 4 mins
Allowances are important for children to teach them financial discipline. This begs the question of the right allowance amount which should be given to children.
Inculcating the right financial knowledge and habits in children prepares them to become financially responsible adults. Giving children an allowance not only enables them to handle money themselves but can also come in handy during emergencies.
However, despite a parent’s best efforts, at times, children may not understand how to correctly use their allowances. While going a little overboard and spending on sweets and junk food is fine, having money in hand could lead them to take detrimental steps as well.
So, how should a parent know whether or not to give their child an allowance? And if they should, what should that amount be? We list down both sides of the coin and also highlight the steps to take to determine a practical amount your child should be getting.
Pros and cons of giving children an allowance:
- They become financially literate: Receiving and managing money correctly as a kid goes a long way in replicating the same habits as an adult.
- They learn the relationship between work and pay: Parents can use allowance as an incentive to include children in chores, instilling the idea that one has to work to earn money.
- They learn the importance of savings: Along with giving them an allowance, parents can teach kids how to save. Even keeping a few coins aside from their allowance and putting them in a piggy bank helps kids grasp the concept of savings early on in life.
- They think of rewards instead of responsibilities: Associating chores with money may deter them from taking responsibility for family chores, and instead may make them feel like they deserve a monetary reward every time they lend a helping hand at home.
- They may not understand financial constraint: Kids may fail to grasp certain financial issues of the family and may expect parents to match up to the allowance they’ve always been getting. This can lead them to harbour negative feelings towards parents in case they fail to meet their expectations.
Parameters for fixing the right allowance amount
What age group do they fall under?
Ask yourself a few questions. Is your child mentally ready to understand the concept of money and how to use it for the right reasons? Do they understand the difference between want and need?
If your child is less than 15 years old, you should keep the allowance amount limited and encourage them to save most of it.
What will they use the money for?
As parents, you’re providing for all the basic necessities. Candies, junk food, and toys are some common non-essentials children use their allowances for. Speak to your kids about where they spend the money and ensure you keep track of where their money is going.
How much 'change' are they keeping from the money you give them for chores?
Whether it's the leftover from the grocery shopping they did on your behalf or a few handful of coins they found on the table, be vigilant of how much 'scrap' money they are getting their hands on as these soon add up.
There is no standard allowance amount that parents should give their kids. The right amount depends on multiple factors, including how much the child needs, and your financial condition. When it comes to allowances, it’s best to know what your child would typically be spending the money on. For instance, children up to the age of nine might use it to buy toys, candies, or comic books. Older children might use it for going to the movies, and may even misuse the money. So, try to have a transparent conversation with your child, wherein you highlight the importance of using the money wisely. Have a look at how to ensure your child grows to be economically independent and pick out relevant pointers specific to your needs.