You probably already know the common plea, “Please buy me…” or “Can I have…?” Your child might have no concept about the value of money if he never has any of his own. An allowance might teach your child valuable lessons about money management and could also put an end to your child’s requests to spend your money freely.
Understand Monetary Value
If your child must earn the money she receives, it becomes more valuable, according to Lewis Mandell, former dean of business at the State University of New York in Buffalo. Mandell says that kids who get an unconditional allowance without working for it are less motivated to attend college or get a job. When your child works for her money, she better understands its worth. Of course, some chores are just done because they are necessary as part of a family, so it is a good idea to require family chores that your child must do without pay, such as caring for her pet, cleaning her room and doing the dishes, based on her age and abilities. To earn her allowance, CNN Money recommends offering other chores she can choose to do, such as cleaning the garage, garden weeding, washing the car or vacuuming. You can negotiate a specific price or base what you pay on the quality of work. By basing an allowance on chores completed, your child ties her work directly to what she earns, just as she would in a future job situation.
Learn Money Management
How your child spends and saves money on a small scale gives him the experience necessary to consider things on a larger scale. If he spends all of his allowance on junk at the beginning of the allowance pay cycle, he will have no cash for personal purchases until he earns more. Lynne Finch, author of “The No-Cash Allowance,” says this works best when you allow your child to decide how to spend and save his allowance, rather than dictate how much he must save and what he can buy with the money. She suggests you assist your child by setting up expenditures he has discretion over and counsel your child to look at his resources to determine whether to spend or save.
Experience Real-World Economics
An allowance can teach your child about incentives and fines. Offer your child the opportunity to sweep the walk, rake leaves, watch a younger sibling or complete another non-required task, in exchange for money. Consider ideas your child has for earning money, and take advantage of ideas that benefit both of you to teach your child the value of an entrepreneurial spirit. You could also offer allowance incentives for academic achievement, participating in church events or other activities you believe benefit your child. The money earned could allow a teen with a driver’s license to pay for her gas and insurance or allow a younger child to attend a concert or week at camp. You can also set up a system of fines for disobedience and have your child pay the required penalty when she breaks curfew or disobeys a major rule. Explain, “When we speed in the car, we pay a fine if we get a ticket. If we arrive late to work or leave early, pay can be docked. Setting fines for breaking the rules works the same way.” Getting an allowance helps make monetary consequences, good or bad, more real for your child.
Learn Negotiating, Bartering and Compromising Skills
An allowance can give your child the means to learn how to negotiate, barter or compromise. For example, if your child feels he needs more money, he can come to you and negotiate a bigger allowance in exchange for more responsibility and work. He might negotiate or barter with a sibling so they can pay for something they both desire. He learns to compromise by purchasing a less expensive pair of jeans instead of the designer jeans that will require all of his resources or by saving his money until he can afford a high-ticket item. You serve as an adviser by helping him brainstorm the best way to use his resources without dictating how he must spend his earnings.