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The best tool parents have for teaching financial responsibility is an allowance. Even very young children should have discretionary funds to spend as they see fit. Saving, decision-making, planning, sharing, charity, and responsibility are just some of the lessons that can be taught through an allowance.
It's important to clarify that an allowance isn't money a child earns for doing chores. Children should have age-appropriate tasks they're expected to do without pay simply because they are members of a family.
An allowance is part of the parents' responsibility to meet the needs of the family. The amount of the allowance depends on the child's age and the parents' income. It should be adequate to meet the child's needs but not necessarily every want. Perhaps the most important benefit of an allowance is learning to develop independent thought. Expect children to do some unexpected things with their money, but allow them to make their own mistakes. The important thing is not to rescue them with more money. Help them work through their own solutions.
We suggest the following tips for teaching financial responsibility:
- Teach philanthropy at an early age. A portion of a child's allowance 10 percent should be allocated to charity. Encourage children to participate in canned good, clothing, or toy drives for charities. Help them to respond to natural disasters, such as hurricanes or earthquakes, outside their community by donating money to help.
- Teach saving at an early age. It's important to put something aside for the future. Teach your children that saving isn't for leftover money. Both the allocations for charity and savings should be made before any discretionary spending takes place. As with the donations to charity suggested above, the child should be encouraged to set aside the same portion of allowance 10 percent for savings. Children should have savings accounts by the time they're 8 years old. If older children don't have savings accounts, remember it's never too late to start a savings account for a child.
- Encourage an entrepreneurial spirit. If children have a special goal, encourage them to find ways to earn the necessary funds. Don't create unnecessary jobs just so they can meet the goal. That's the same as giving them the money. Let them find a job and make the offer. If it meets a need and the price is right, hire them.
- Never reward good behavior with tangible gifts. Goodness is its own reward. Your approval and words of praise should be sufficient. Paying for good behavior leaves parents open for juvenile blackmail. Parents don't want to hear, "I'll stop crying if you take me to the toy store," or "I'll come home on time if you buy me a new stereo."
- Don't try to compensate your children for your own deprivation as a child. There are some purchases that signify changes of lifestyle and qualify as rites of passage. Allow your children the pleasure and pride that making those purchases for themselves can bring.
Teaching children financial responsibility can be an exciting and fun-filled experience. It's not always easy, but when parents are consistent, the rewards are immeasurable. Parents will be giving their children skills that will benefit them for the rest of their lives.
This article was excerpted from National PTA's magazine, Our Children.