If you don't want to read the full article, go ahead and watch a video script at the bottom of this page!
We're sure you're one of those parents who has often wondered what the best form of an Allowance is.
Unfortunately there are so many opinions on the internet that you do not know which one to follow and that makes you completely confused. You are looking for a perfect solution, but you do not know how to choose it. So your child does not benefit from an Allowance on a regular basis and you feel frustrated that you can not decide.
We, the Money Iceberg team, have faced the same dilemma at one moment. After thousands of cases studied, we know the solution you need. It is an extreme solution, but it is the most effective one.
You should use an allowance to help your children learn what they should do with their money:
- earn it
- count it
- save it
- share it
- grow it
- spend it
1. What exactly is an allowance?
The rich way to go about the allowance is to include in it ALL your children s expenses except household, healthcare expenses. Yes, you heard me right. ALL. This is the only way the experience will feel like a real thing, not a joke like in most families. Give them the money weekly and budget with them everything from candy or an app they want to download to clothing and education.
Our suggestion is to establish a jar system for your child’s allowance. This system could include jars for saving, spending, investing and charity. All the money a child receives, including birthday money and other gifts, should be divided among these three jars. How the money is divided among each jar is up to your kid.
An allowance must help children budget. It teaches them how to save for their favorite toy, but also of how many things are needed to support your lifestyle. You may even consider lending your child some money for the purchase to teach them the discipline to pay the funds back. If your child doesn’t budget appropriately and runs out of money, don’t rescue him with more money. This is a great teaching opportunity to reiterate the importance of budget management.
2. When to start kids’ allowance?
The general idea is to make an allowance part of a household routine and adapt the financial parameters to the developmental stage of the child. Teaching children to handle money earlier can prepare them for real life and they may receive an allowance as soon as they can differentiate between coins (around ages 6 or 7).
3. How much should kids’ allowance be?
One rule of thumb is that the amount of allowance earned mirrors a child’s age. A 5-year-old, therefore, would receive $50 per week while a 10-year-old would receive $100. With the goal of financial literacy in mind, however, the actual sum of money is not as important as some may assume. It’s fine to adapt that rule of thumb to whatever works within your household budget. It is important that you wait to increase your child’s allowance until he has demonstrated that he is learning financial responsibility.
4. What chores earn an allowance?
When it comes to both earning and spending their money, children only benefit when expectations are clear from the outset. Decide and communicate clearly what chores in the household are simply expected as contributions to the family. Picking up toys or clearing dishes, for example, should not be a matter of negotiation or reward. Larger chores, say yard work or washing windows, may be something they earn extra for.
5. What will they learn from this?
The key to making allowances count is to let your children make mistakes about what they purchase and to not run in and purchase something when they fail to reach their goals.
If they run out of money or are disappointed with their purchase, they will eventually learn to make different choices, without you intervening. In time, as they learn to set purchasing, savings or investing goals and work to achieve them, your children will learn money management like a Pro.
These are the main things you need to know about Allowance. Implement them now exactly as we have described above and see how your child will become more accountable soon enough and will be able to organize his/her money much better than other peers.
This will prepare him for life and avoid the shock that 85% of the children have when they go to university, having to organize their own money for the first time in their lives and fail to do so.
And you do not have to choose what system you need to implement in your home. That’s it, you have it. Put it into practice and don’t worry anymore.