Becoming financially responsible at a very young age is a good thing. Mamas and papas can help their little ones be knowledgeable about financial responsibility through introducing the concept of allowances and guiding them in managing their money. This is identified to be a crucial aspect of their overall development, wherein the skills they will learn from this will aid preparing for a financially secure future. Some of the skills children exposed to financial literacy will gain is accountability, wise decision making, critical thinking, and even reasoning.
There are practical tips that parents can pick up and use to effectively teach their kids how to manage their allowances. To start with, one should understand the meaning and significance of allowances. Following that would be budgeting strategies that fit their needs. Continue this read to discover more information regarding how parents can teach their kids to handle their allowances or their money.
Understanding Allowance and its Benefits
Before anything else, allowance must be defined and be well understood. Allowance refers to “an amount of money that parents regularly give to their child to spend as they choose” (Cambridge Dictionary, n.d., Definition 3). Allowances have different kinds and one of these would be student allowances. It is actually a simple concept where parents give their kids a specific amount of money – can be on a daily, weekly, and monthly basis. Though it may be simply put this way, the impact of it on a child’s financial development is huge. It goes beyond receiving money from parents, but it is actually a tool for teaching financial responsibility and money management skills.
Providing kids with allowances nurtures their financial growth and independence. There are a lot of benefits that can be enjoyed by parents and their little ones when they practice this. Here are some of the learnings children can get from having student allowances:
1. Financial Literacy: Giving an allowance budget to children, they are being exposed to basic financial concepts and eventually develop financial literacy at a very early stage. They become familiar with concepts such as budgeting, saving, and making informed decision making – all these will be essential as they grow older and journey to becoming financially responsible adults.
2. Responsibility, Accountability, and Independence: Becoming a student and having an allowance will allow them to become responsible individuals. Handling their own money also makes them accountable for their financial decisions. They develop a sense of independence too by managing their earnings and other financial matters on their own.
3. Goal Setting: There may be certain goals that will be set from having an allowance budget. Being able to set financial goals at a very young age is a good practice. They understand the value of saving up for their wants, may it be buying a toy they really like or do an activity.
4. Building Strong Foundations: Children’s exposure to allowances builds a strong foundation for a lifetime when it comes to financial well-being. Being responsible with their finances at the start of their youth are more likely to excel in money management and make wise financial choices as adults.
These lessons coming from money management will extend towards developing valuable life skills. In their early years, having such an opportunity to exercise multiple essential skills and create financial habits will nurture a heightened sense of financial responsibility.
Providing Allowance for Kids: Tips for Parents
In order to provide help and support for kids to learn how to manage their allowances, parents can guide them in the beginning through discussing their allowance budget, where and when they can use them, and how to slowly save up.
Teaching kids the importance of budgeting is a valuable lesson that opens up the door for responsible financial management. Introducing children to the concept of budgeting their allowance will equip them with numerous skills that will serve them well as they enter adulthood. Parents can come up with an allowance budget to let their little ones be encouraged to make thoughtful decisions about their money. This also helps in making them think about their priorities and differentiating their needs from wants. Setting expectations on how much their budget would be for a week or for a month would really help parents and their little ones be aligned when it comes to money management. Mamas and papas can set up a calendar reminder to stick to a certain schedule of release of allowances. From then on, having a schedule is one of the keys to learning how to budget since your little one will know when the next allowance will be given.
Another aspect parents can consider would be to discuss where and when the money can be used by their little ones. This will involve explaining the importance and value of money in one’s life. For instance, letting them know that in order to get something they want from the canteen or avail the latest toy, they have to pay for it using money. Sitting down and conversing about wants and needs can also help in determining where and when money can be used since it is limited. Actively involving kids in the use of their allowance budget will help them become more engaged and invested in managing their money.
Parents can also teach the value of saving up to their little ones. Teaching them how to allocate a portion of their allowance for saving towards specific goals will be greatly beneficial in the long run since it is a good financial habit. Mamas and papas can encourage their children to save in a piggy bank, or when possible, help them open a bank account. Their excess allowances every week or month can be deposited for future savings.
On the other hand, there are of course, allowance mistakes by parents that can be avoided. One of these would be providing an excessive allowance. Giving your children too much can lead to negative outcomes as it may foster a sense of entitlement rather than responsibility. They may feel that they can get more since they have more. This is why having an ample budget that is still enough for kids to save up and purchase their needs and wants is a must for parents when it comes to giving student allowances.
Next would be not teaching them to make responsible purchases. Though they have the means to get what they want from their allowances, parents should reach out to their little ones and teach them about financial responsibility since there may be instances that kids will buy whatever they want as long as they have money.
Lastly, not talking about the given allowance may cause trouble too in the long run. Giving kids allowance without further discussion will not be enough. It would be very helpful for parents to initiate conversations about financial aspects – savings accounts, piggy banks, cost of goods, or simply shelling out money to purchase something. In this way, kids will gain a holistic understanding of money management and develop essential financial skills.
Moving Forward with Allowances
Empowering kids with financial knowledge and skills to manage their allowances lays a strong foundation for a lifetime of financial responsibility. Budgeting money is one of the hardest skills that may be out there, but letting your kids be exposed to it since childhood is a good start. As they grow older, they will be more equipped in making wise financial decisions and be more confident in living in the real world.
A certified financial planner and the founder of Financial Enlightenment in Dallas, Clark D. Randall said that “It’s not that the allowance that a kid gets when they’re 11 is going to be the dollars that make them a millionaire, but the habits that they form from managing it will allow them to be financially successful in life” (CNBC, 2020).
Imparting valuable lessons from having allowances and being financially literate is a gift that will benefit young individuals throughout their lives.
