For some parents, talking to their kids about money is about as unpleasant as, well, talking about the birds and the bees. But combining money talk with an allowance gives you and your kids a way to approach the difficult subject. Plus, you get to teach your kids how to manage money in a real way.
In fact, allowances seem to be all the rage. According to the 2015 T. Rowe Price Parents, Kids & Money Survey, 70 percent of parents reported giving an allowance to kids ages eight to fourteen, up from 47 percent in 2013. Eight-five percent of these kids earn their allowance, while fifteen percent just collect a weekly payout from mom and dad.
Either way, an allowance will help teach Junior about fiscal responsibility while giving him a head start on saving and spending within a fixed budget. Kids don’t just get to decide when and where to spend money, but how to spend it, says Dan Meader, co-founder and CEO of Allowance Manager. With an allowance, Junior has a finite amount that he can save or spend. Better yet, he learns how to make money decisions before he grows up and they really count. For example, blowing allowance money on video games with nothing left over to go to the movies sure beats not being able to afford rent because you have no ability to save and budget.
"Understanding money is a skill and best developed through early and frequent first-hand experience," says Meader.
Once you’ve decided to try out an allowance with your child, here are some tips to help you get going:
1. Start when your child truly understands money and how to make change
This usually happens around age five to seven. At this point, Junior has a grasp of the value of money. You can start by giving a minimal allowance of a dollar or two a week. Kids at this young age are generally eager to please and want to pitch in and help.
2. Raise the rate as your child gets older
As Junior gets older, you may decide to up the ante as two dollars a week doesn’t mean much to a teenager. For older children and teens, you may want to tie a higher amount into chores around the house or offer a base allowance with the potential for more if certain tasks are completed, such as doing laundry, mowing the lawn or taking out the garbage. To decide on a good allowance amount for your family and budget, it’s important that you weigh the going rate in your neighborhood with how much you can afford and think your child deserves.
3. Talk about money
According to the T. Rowe Price survey, letting kids learn about money by spending and saving their allowance works best when you continue to discuss money with them. In fact, as uncomfortable as it may be, if you talk about money with your kids, they will have a better grasp on managing their finances as they grow up. And, the survey says: Kids who both discuss money with their parents and have the highest number of experiential learning opportunities, like allowances, are "significantly more likely to think they are smart about money."
4. There’s an allowance app for that
Since most kids are already tech-savvy while you are teaching them to be financially savvy, why not use an allowance app to blend the two? There are several to choose from, including Allowance Manager, iAllowance, and Tykoon. Although slightly different, all three apps give you and your kids the ability to track spending. Using iAllowance, which calls itself "Piggy Bank 2.0", you can track specific chores and whether they’ve been completed. Allowance Manager has a cash ledger function, called Allowance Tracker, as well as a real money component in the way of its Allowance Card. Using this debit option, parents can load allowance money onto the card for kids to spend or save. The Allowance Card is a great option for teens as they become independent and learn to make choices about how and where to spend their cash, says Meader.
Image: Brandon Morgan