Help your elementary schooler understand allowances
Even young children can use a small allowance to learn essential money management skills.
If you’ve decided to pay your child a weekly stipend, you’ve joined a time-honored tradition: 54 percent of parents begin doling out an allowance by the time their child is eight years old, according to a 2012 survey by the American Institute of CPAs (AICPA), the most recent study available. Although the amount varies, many moms and dads follow a popular guideline of 50 cents to $1 each week for every year of an elementary schooler’s age. So an eight-year-old might receive $4 to $8 a week.
Parents give out allowances for a variety of reasons. While some parents intend to pay for chores, others simply want to provide their children some real-life experience handling money. In addition to learning how to count and handle money, many experts believe an allowance can be a tool to teach children about basic money management life skills, such as earning, budgeting and saving, as well as the benefits of delayed gratification
That may seem like a lot for an elementary schooler to handle. But young children often are capable of much more than their parents give them credit for. (Check out our guidelines on how to establish money rules for any age child.) Children can begin to learn how to count coins around age 5 and should master this skill by the end of second grade—even if they still struggle to comprehend the value and purpose of money. During this same time kids also start to differentiate between wants and needs, and can develop the discipline to save for short-term goals, according to Joline Godfrey, the author of Raising Financially Fit Kids. By the time children finish fourth grade, parents realistically can expect them to be able to list examples of financial decisions and their possible consequences, according to the Jump$tart Coalition for Financial Literacy.
When implementing an allowance, it can be helpful to talk with your child—keeping in mind her age and level of understanding, so she understands what you are giving her, why she is receiving it and what parameters you set.
- First, spell out how much you’re giving, and make the amount nonnegotiable.
- Then explain what’s required to earn the allowance. The big question: Will your elementary schooler have to do chores? Some experts believe chores are helpful since they make a child earn the allowance. Others fear kids may stop doing the jobs around the house once they feel they have enough money. That choice is up to you.
Once you hand your child a weekly payment, determine how it's used.
- One popular idea is to split money among three categories: spending, saving, and giving to charity. Experts note that a simple way to encourage elementary school children to do this is to provide them with three piggy banks.
- Then dole out the allowance in denominations that are small enough so kids can immediately divide up their money across the three vessels
- Even if you choose not to give an allowance, you can apply many of the same teaching methods to money your young child may receive as gifts.
When it comes to the bucket that’s allocated to spending, children need to understand if there are any rules or expectations. For younger children the cash could be intended for discretionary items, including ice cream, checkout counter trinkets, action figures and other toys.
As kids get older, parents may want to consider whether kids should contribute to some of their own needs, like sports equipment or school supplies. You could also use this opportunity to discuss any spending restrictions, such as violent video games, makeup or other hot-button items.
Once you start paying, don’t stop the conversation. Discussions at the toy store or grocery store can help illustrate the idea that if your child spends all of his money the day he receives it, there’s nothing left over for the end of the week. When it comes to saving, consider suggesting that your child set short-term savings goals: Write down the coveted items and figure out how long it takes to save enough money to purchase them. You also could offer your child opportunities to do extra chores around the house to earn more money, so he can buy the items sooner.
Finally take a step back and avoid micromanaging your child’s spending. As long as your elementary schooler is following your rules, let her make a spending mistake or two—that’s one of the best ways to learn.
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