Perspectives from Our Michigan Bank
Almost 7 out of 10 parents give their children under 18, an allowance. This is according to survey results examined in articles from CBS News and the New York Times. Why do parents pay their children?
- One goal of the allowance is to teach kids about the value of money and financial responsibility.
- Others who expect their children to perform tasks or chores in return for an allowance say they want to demonstrate what it’s like to get paid for work.
Both goals are admirable and seem to make giving an allowance an easy 'yes.' But giving (and managing) a weekly payment can have challenges for you and your kids. Teams at our banks in Detroit and Ann Arbor want to share their perspectives about how you and your children can reap the full benefits of an allowance.
Making the Most of an Allowance (for you and your kids)
An allowance can be a useful tool for teaching your children about financial management when structured appropriately.
- Use your kids’ allowance to teach them about budgeting. A 'budget' can become visible through devices like 3 small containers. Help your children divide the money into meaningful categories such as 'new toys,' 'books,' or 'treats.' You can talk with them about how they'll need to allocate to each category to have the right amount of funds.
- Be sure to have 1 of the containers labeled ‘savings.’ Surprisingly, the NY Times survey showed less than 5 percent of children saved part of their allowance. Learning to save money is essential for financial stability. Every budget, including an ‘allowance budget,’ should include setting aside money for longer-term goals.
- As the funds in their savings container grow, talk with your children about opening a savings account. You’ll have another teaching opportunity to explain the concept of interest and how money can grow over time.
- While there’s no right age to begin giving an allowance, starting when your children are younger gives them more time to learn.
- Many parents give an allowance to children between the ages of 8 and 14. Some begin teaching money management as early as age 5, and a few parents continue giving an allowance until age 25.
- Your decision should incorporate your understanding of your children. Triggers to look for include an understanding of basic mathematic concepts or an expressed interest in money.
- The size of the allowance is less important than how your children manage it.
- A common approach for determining the amount of allowance is to align the dollars with your child's age. For example, give 6 dollars a week for a 6-year old, or 10 dollars for a 10-year old. A survey from com showed the median allowance was 4 dollars per week, while another study from the American Institute of Certified Public Accountants put the weekly average at 30 dollars.
- If you decide to give an allowance, include the payments in your budget, and keep the amount at a level that doesn’t strain your financial situation. If your financial situation changes due to job furloughs or layoffs, consider adjusting your children’s allowances. Talk with them about the household's temporary financial situation and show how they're helping the budget by accepting a reduction.
- As your children get older, consider giving a ‘cashless’ allowance. Transitioning from coins and paper bills to deposits to a debit-card-linked checking account or online banking helps your children understand how to manage these technologies.
- Finally, rethink tying the entire allowance to chores. Taking out the trash or picking up their room teaches children that being part of a family includes helping the household. Consider linking some (or all) of the allowance to going above-and-beyond (like unexpectedly weeding the garden) or as an understood mechanism for teaching financial literacy.
To learn more about the ways Level One Bank can help you and your children with money management, contact our team. Or stop by one of our branch locations in Ann Arbor, Grand Rapids, or Detroit. We’re here to support you and your family.
What is important for kids to learn is that no matter how much money they have, earn, win, or inherit, they need to know how to spend it, how to save it, and how to give it to others in need. This is what handling money is about, and this is why we give kids an allowance.
- Barbara Coloroso