ALLOWANCE FOR TEACHING

According to a survey by the American Institute of CPAs, parents give their kids an average of $15 a week which adds up to $780 a year with older children receiving more than younger ones.  According to CNNMoney, parents say that their kids are spending their allowance as soon as they get it. That's human nature, isn't it?

Let's take a time out.  Financial literacy is learned and parents need to begin teaching their kids about money early on.  These lessons can start as early as three years-old and continue into adulthood. The fundamentals stay with us for life.

In MONEY DOESN'T GROW ON TREES  I teach my Four-Jar Budget System at length.  This is a system I created when I first began working with kids and families – it really works.  Let's look at the most basic principles.

The first thing to remember is that an allowance is “work for pay” - “work” being a series of age-appropriate chores.  Turn “pay day” into a ritual which means you should distribute the allowance once a week at a specific time. I suggest paying your child $1 for every year of age – for example, a 5 year-old gets $5.

Now about the “jars”, they can be envelopes or even plastic bags but they should be see-through.  The first jar is for Charity.  The second jar is for Quick Cash.  The third jar is Medium-Term Savings.  The last is for Long-Term Savings. Each should be labeled.

Charity is 10 percent off the top of the allowance.  This is how you teach your child the value of giving.  It also opens up a dialogue to discuss your family values.

The balance of the allowance is divided equally among the remaining three jars.

Quick Cash is is there for whatever your child wants to spend it on within the parameters of your family rules.

Medium-Term Savings is for a plan you have made with your child for something that might take three weeks or more of saving.  This is how you teach deferred gratification.

Long-Term Savings is to instill a sense of investment in his own future. I suggest saving for college. As the child grows, this money gets put into a bank account and later into other investments.

Now you have the framework to help teach your child the basics of saving.

The Allowance Debate

Should you or should you not have kids do chores to earn their money, or, should you just give them their money?

I’ll make it easy.  If you want to support the entitlement program of, “I’m on this Earth therefore I’m entitled to be supported”, then just dole out the dough.  But if you want kids to understand that the only way to get money is to earn it, then tie money to work.

There are two types of chores in a household: Citizen-of-the-World chores which you do for no pay, because we all share a planet.  And Work-for-Pay chores, where kids learn the life skills to make a home run—and they earn money.  For more tips and tools go to www.childrensfinancialnetwork.com/.  Let me know your thoughts.