Financial literacy is among the many life skills parents
need to teach their children. However, according to the Networks Financial
Institute, more than half of all parents believe that their child feels that
“money grows on trees.”
Child and Adolescent Family Therapist Darby Fox explains how
to lay the ground work in raising money-wise children through an allowance.
"Allowance is a great opportunity to teach children
about money," says Fox. "A good age to start is around 7 or 8 years
old. At this point they are old enough to understand the concept of money and
have the basic arithmetic skills necessary to add and subtract.”
Fox goes on to explain that before age 7, children aren’t
mentally developed enough to benefit from receiving an allowance. The
connection between earning and spending money is still too abstract. Parents
are better off waiting until their child is a little older, when they can
appreciate the lessons and responsibilities that come with receiving an
allowance.
READ MORE: Hey kid, money doesn't grow on trees!
A mistake many parents make is using allowance as a reward
system for good grades or as an incentive for good behavior. It’s more
important to encourage a child’s work effort than it is to offer payment, or
even a bribe, to children for conducting themselves appropriately.
A better approach is to give the child chores that are
expected to be done each week for a set payment. Fox advises that parents
should withhold money for tasks not completed.
“It’s important to remain consistent and clear that
allowance is payment for finishing chores, and not something they are entitled
to receive,” recommends Fox.
Allowance can start at around a dollar a week and increase
over time as children are able to complete more tasks. If a child is saving up
for something special and would like to earn more money, this is a good
opportunity to teach more work for more reward. Set up additional tasks that
will result in bonus allowance.
“Allowing children to earn their allowance, rather than
simply handing it to them, will give them a sense of pride and help them better
understand the concept of money,” says Fox. “Granting allowance without
requiring chores is a missed opportunity to help a child grow both
intellectually and emotionally.”
Allowance is great way to begin the conversation about
financial responsibility and money management with young children. Parents
might want to require that their children split their earnings between savings,
donation, and spending. This is a simple way to teach children that giving and
saving are responsibilities that come with receiving an income.
Darby Fox has over 20
years of experience providing individual and group therapy in both non-profit
and private settings.