Talk to any financial advisor about how to teach your teen about finances and you'll probably hear this: give them pocket money or an allowance to manage. Experts say it is your child's first exposure to money and will most likely shape their attitudes towards finances.
This is probably why most parents are talking more about pocket money today than ever. As a parent, we all want the best for our kids. And every parent puts their best foot forward to make sure their child succeeds regardless of their financial situation.
But let's also be candid. Every parent is horrified that they're going to make that ONE mistake that might wreak havoc in their kid's financial life.
And when it comes to allowances or pocket money, parents struggling financially, in particular, face these conundrums: should you pay your child to do chores or give them pocket money that's not tied to chores? And how do you ensure the allowance nurtures financial discipline and independence?
In this blog post, we look at five ways to use allowance to teach your teen about finances and good money habits.
Choose The Best Approach To Give Allowance
There is no "right" way to give your child an allowance. It greatly depends on your personal beliefs, family's financial situation, and your child.
If you give chore-based allowances, your child learns to work to earn money. However, it can also teach them that they don't have to do chores. On the other hand, if you give them an allowance every week, no matter what, you risk raising entitled kids who don't understand the value of hard work.
Experts recommend giving your child the best of both worlds. Give them a minimum amount of money every week that is not tied to any chore. But make it clear to them they're expected to do certain chores like cleaning their toys and making their beds. But don't stop there.
Let them Earn More
If you are trying to teach your teen about finances, try to make it as realistic as possible. Tell them if they want more money, they're free to do other chores such as washing windows, bathing the dog, raking leaves, and more. This gives you and your child a real-world experience. Your child gets real money to learn from and also understands the value of working to earn.
Show Them Where The Money Goes
When teaching a kid to save, make it as exciting and practical as possible. It can be really difficult for them to know where their money goes when you give them $5 for allowance then take it back to save. Kids will be like 'where did the money go?'
The best strategy would be to take them to the bank or open an account online and show them where the money is. This way, it is easier for them to see their savings growing. It will make them excited to save because they know sooner they will be able to buy something big on their own.
When you plan to give your child a certain amount of money every week or month, make sure you do so. A good rule of thumb is to give a child a dollar to his or her age. That means if your child is 10 years old, they get $10. And that's not all.
Being consistent also means you let your child decide what they want to spend their money on. Even if they blow it, it will teach them a valuable lesson.
Don't Use Pocket Money As Punishment
As mentioned earlier, allowance is the first-hands-on experience your child will have with money. As such, don't do anything that will cause them anxiety. This is very important when trying to teach your teen about finances.
For example, if your child misbehaves, don't take away or reduce their pocket money. Use other ways such as taking away toys, electronics, and other privileges.
Kid's allowance can be a great tool to teach your teenager about money. As soon as you start giving them pocket money, use these tips. What other strategies do you use to nurture your kids financially?