Tuesday, March 22, 2011

5 Tips for Setting Up an Effective Allowance System

Photo taken by Brittany Whitlock

If asked, most parents would say that they want their children to have smart money skills.  Figuring out the best way to teach your child about money can be a bit tricky.  There are many theories of how allowance or money lessons could be structured and used within a family.  Do you give an allowance or not?  Do you tie the allowance to chores?  Do you pay for grades?
  A simple internet search or a browse through your local library will give you a wide variety of allowance methods. MoneyTrail can be adapted and used in many different ways to help you teach your child about money. Here are a few methods that we have discovered from our users:

  •  Give your child an allowance based upon his age. For example, a 10 year old would get $10 a week whereas a twelve year old would get $12 a week. You could adjust the amount per year to meet your budget.  Some families may choose to do $0.50 per year or perhaps $1 for each grade/year in school.
  •  Give your child a small allowance per week (i.e. $2) and let them have reasonable control over how to use it.
  • Divide your child's allowance into categories, such as Save account, Spend account and Share account.
  •  Give your child an allowance but have chores that must be accomplished before the child receives the allowance.
  •  For teens, some families give a large monthly allowance (i.e. $100) but the teen is responsible for the budgeting of this money and must use it to buy clothes, gas, food outside of the home, entertainment, spending money, school supplies, etc. Once the money is gone, he must wait until the next month to get more.
  • Many families do not give an allowance but still use MoneyTrail to teach children how to keep track of their money and IOUs.

The key to successfully implementing an allowance is finding or creating a system that works for your family.  If you choose to give your children an allowance, here are a few key points to guide you in creating your system.

1.        Use the age of your child as a guideline.   Younger children are probably not ready for detailed budgeting and teenagers have probably outgrown the piggy bank.

2.       Keep it simple.  Your child needs to be able to fully understand the system and you need to be able to easily keep track of it.  Online systems, like MoneyTrail, can keep your system organized and up-to-date.    

3.       Keep the amount of allowance reasonable for your family.  Don’t feel like you have to give your child $20 a week just because that’s what all of his friends are getting or because a random online allowance calculator tells you a certain amount.  Pick the amount that fits into your overall family budget. 

4.       Be consistent.  You may need to make a few tweaks here and there to get your system working for your kids but resist the urge to completely overhaul the system until you have given it enough time to really work.  Kids learn through consistency and repetition.  It could take a few months for them to really get used to the system and learn to make good choices with their money.

5.       Talk with your child.  Use the everyday, teachable moments to have financial conversations with your child.  If they want a certain toy, talk with them about a plan to achieve the money necessary to buy the toy.  How many weeks of allowance will it take?  Are there other ways to earn money?  Let them see you making money decisions and include them in conversations about it.  For example, do you buy the name brand cereal or the generic?  Is it worth the price difference?

Allowance can be a great learning tool for your child.  With planning and forethought, an allowance can enhance the financial literacy of your child.  MoneyTrail can be customized for your family and can help you keep track of allowances and IOUs.  Visit our Account Types page for more detailed information.

I would love to hear about the allowance solution that you use with your family.  Please leave a comment and tell us what works for you.



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