Is it a good idea to give your child an allowance? Money Girl tackles a reader question. Turns out, giving your child an allowance may affect future financial success.
Q. "Do you believe allowances are a good way for kids to learn about money?"
A: Yes, an allowance can be a good way for a child to learn about money—but only if it’s used to reinforce desired behavior. For instance, if a child completes chores around the house or achieves good grades in school.
Getting a monetary reward for good performance helps instill a work ethic in children that will stick with them for life.
The best part about a child having his or her own money is that it creates an amazing teaching opportunity. If a child is old enough to make purchases, he or she can start learning the basics of managing money.
Here are 5 money management skills you can teach children via an allowance:
Math: do basic math to count money.
Saving: experience the benefit of delayed gratification, along with the satisfaction of seeing your savings grow.
Budgeting: allocate money for different purposes—such as spending, saving, and giving—according to what’s most important.
Accounting: track spending to see where money goes.
Setting goals: create goals to achieve, such as saving enough to buy something special or earning a certain amount.
Parents also benefit by helping children develop good money management skills. Teaching good habits may also reinforce your own—or make you more inclined to set a good financial example.
A teaching tool that I recommend is FamilyMint.com. It gives a child the opportunity to manage virtual accounts online, but using parents as the bank. In other words, you hold your child’s money and FamilyMint.com keeps up with all the accounting.
If a child has money to deposit, they give it to the parents and enter the transaction online. When he or she wants to buy something that you approve, they enter an online withdrawal and you hand over the cash.
Kids can create multiple accounts to set aside money for different purposes such as savings, items to buy, or gifts to give. They can create goals and track spending, just like a grown-up version of accounting software.
FamilyMint.com even has reminders for mom and dad so you never forget an allowance. And, who knows? You may learn something too.
Other Links You Might Like
Get the Money Girl Book!
Looking for more money advice or a great gift? Pick up a copy (or several!) of Money Girl’s Smart Moves to Grow Rich. It tells you what you really need to know about money without bogging you down with what you don’t. Get the ebook version or paperback at your favorite book seller today!
Girl holding money image courtesy of Shutterstock.