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Why you need to give your child an allowance

Why you need to give your child an allowance

Just 1% of parents surveyed by the American Institute of CPAs say their kids save any money.

The skill of managing money is equally important to cooking, cleaning and showing respect, but most of us treat teaching our children about finances with indifference.

No matter what your own financial literacy, history or comfort level is, children will learn financial skills best from their parents. Teaching them about money is more than just talking about money, it’s modeling first and then doing. Here are five reasons why giving your child is more important than you think.

1. Start early to create life-long habits

Think of one of those times that your child has embarrassed you in public by rudely demanding a sucker from the bank teller, instead of saying “Can I please have a sucker?”

You probably stopped them and reminded them to use their manners. Without the consistent reminders to say “please” and “thank you”, children would not just naturally develop polite manners. They need real life, practical experience and practice in order to master polite manners. Simply put, developing healthy habits takes time.

The same principle applies to managing money, having a budget, and saving money!

When is a good age to start?

By the age of 4 or 5 children have learned how to count to 20 or so (my 4 year old daughter counts to 20, except 15 has recently disappeared). At this age, they can perform small chores such as putting the shoes on the shoe rack, dusting, and putting their toys away. They are learning the importance of responsibility as well as the concept of numbers. This is a great age to start an allowance.

Dave Ramsey, a nationally respected financial author and radio show host teaches that young children can and must learn how to manage money. He suggests that they start with three separate piggy banks- Spending, Savings and Giving. He encourages parents to help their children set goals for each account. If they are too young to write down the goals, take a picture of the toy or item that the child would like to allocate each account for. This is also a great time to help them learn the art of giving.

Charities will take any donation, no matter the size. What a fun way to help your children think and act differently about money!

Dave Ramsey suggests that the child be allowed to pick the charity as well. After he or she has saved up for a few months, go online and discuss the different types of charities for animals, child hunger, or a specific research foundation dedicated to healing an illness.

If financially possible, consider doing a “parent match” in these different savings accounts of 10-50%. Nothing motivates and gets a child excited than getting more of mom and dad’s cash!

2. Children who receive allowance are financially responsible

Children who receive an allowance are more likely to consider themselves financially knowledgeable and responsible, than those who do not receive an allowance, (32% vs. 16%), understand the value of a dollar (90% vs. 81%), and feel smart about money (40% vs. 25%), according to a new study by T. Rowe Price.

When I was 9 years old, I had a favorite baseball player Darryl Strawberry. He had POWER, a smooth swing and a high kick that I copied during my each time I played little league. I found a Darryl Strawberry rookie card enclosed in a 5×7 glass case at a local card shop. Listing price $20.

For my 9 year old self, this was a lot of money. I talked to the store owner and he agreed to hold it for me for a few weeks in the back of the store. I went home and asked my Dad to borrow $20. Wisely, he said no, but told me I could earn it.

I took off to my room and created a savings plan on a new sheet of lined paper. I approached my parents about mowing the lawn, pulling weeds and other household chores. I found out that it would take me close to a month to earn the $20.

I worked hard and during each chore I focused on owning the glass encased Strawberry rookie card. At the end of each week, I counted up the money and updated my savings sheet with scribbles and re-writes.

As the summer went on and my goal drew closer, my canister of money grew heavier and my savings sheet became dirty, ripped and wrinkled. I took my money to the card shop and fortunately, the Strawberry rookie card was still there.

I’m still the proud owner of that card. Strawberry had some legal problems, his career was cut short and so now that card is only worth a few bucks. However, the card remains one of my favorites and is a prized possession because of the memory of setting a financial goal and reaching it. More importantly, and just like the research said I learned the value of hard work, the value of the dollar and not borrowing money if I didn’t really need to.

3. Children learn through observation, modeling and practice

It’s intuitive that talking to kids about money gives them financial knowledge,” says Judith Ward, senior financial planner at T. Rowe Price. She goes on “But we were surprised to see the extent to which letting kids experience money may have an impact.”

Simply talking about money with your children is not enough. Children need to experience earning money, saving money, making change and paying for things on their own.

Ms. Ward then shared a great quote.

If parents talk about money but don’t let their kids experience it, it’s like telling them how to play the piano without letting them touch one and expecting that they’ll be able to play a sonata.”

What a great comparison. As with any other principle or life skill, in order to master budgeting, saving and managing money children need practice. The insignificant dollar amount is not as important as the significance of the practice.

Learning to stick to a budget is vital. NO BAILOUTS!

The study by T.Rowe Price also suggests that it’s important that children make mistakes with money. Children who’d made money blunders reported feeling two to three times more knowledgeable about managing finances (36% vs. 16%) and investing (26% vs. 8%) than those who had not.

Help your children with small-scale budgeting when they earn their allowance. Nothing drives home a lesson quite like dealing with your own cash. NO BAILOUTS!

4. Leads to open and confident communication about money

The research study suggests that children who have frequent conversations with their parents about money are far more likely to think they are smart about money. (70% vs. 15%). They also report that they are more likely to feel empowered and confident regarding finances down the road.

This is a great way to practice Effective Communication each week as chores, allowance, savings goals, and giving to charities are discussed. 

By giving your child an allowance, following the skill steps to Effective Communication and listening to the financial advisers suggestions in this post, you will find several built-in important conversations to have each week with your children.

5. Saves future relationships

Arguing about money is the top predictor of divorce, according to Sonya Britt, a Kansas State University researcher.

Professor Britt suggests that couples who argue about money early in their relationships, regardless of their income, debt or net worth were at a greater risk for divorce. The topic of money is taboo in our society. Children grow up, they aren’t earning money on a regular basis and according to reports they certainly aren’t saving it.

Teenagers graduate from high school, they go out on their own, begin dating and quickly start buying cars, homes, wedding rings, etc. Most young adults don’t have any practical experience budgeting or managing money.

Bills start to accumulate, while the savings account remains at zero. Professor Britt speaking of relationship problems and divorce says “It’s not children, sex, in-laws or anything else. It’s money—for both men and women.” This supports another research study “Examining the Relationship between Financial Issues and Divorce” , which found a couples finances to be the strongest indicator of divorce.


Managing Money is a complex skill for anyone, but kids will learn if we show them. Helping your child budget each week can definitely be a fun weekly activity. It is also a GREAT time to use Effective Communication and Preventive Teaching!

The trick involves learning how to adapt to changing finances. If you show your children how you track expenses, put money away, and set a side money for future FUN things like vacations and toys, they will develop a strong set of money management skills and you won’t have to worry about them taking care of you when you’re old!



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