Introduction

Everyone has attitudes and feelings about money which are based upon observations and experiences of childhood. How money was handled in a your family when you were a child will greatly affect how you handle money with your children. Because of these different attitudes about money, conflicts often arise between parents when money topics such as allowances are discussed. It is very important for parents to use a consistent approach to giving their children money and to teaching them about earning, spending, sharing, saving, and borrowing money.

While this publication explains the ways children receive money, more general information is presented in Teaching Children Money Habits For Life listed in the reference section.

There is no right or wrong way to provide children with money. Each method has advantages and disadvantages. Because each family's financial situation is different, choosing a method or combination of methods is a family decision. This publication talks about the pros and cons of each method and ways to make any method work for your family.

Allowance Procedures

Few children see an allowance as an educational tool. In order to be an effective teaching tool, allowances need to be a planned experience between the parent and child. It may be helpful for parents to discuss these questions when deciding about allowances for their children:

• How do/will I teach my children about money management?
• Did I receive an allowance as a child?
• If given an allowance, how was it given? Did I have to earn it or was it given to me without question?
• If I didn't receive an allowance, how was I taught about money?
• If I didn't receive an allowance, did I wish I had? Why or why not?
• Is there anything I would do differently than my parents in terms of using an allowance to teach my children about money?
• How will we, as parents, resolve differences about how to approach allowances with our children?
• How will my child learn that there are limits to income and that as an adult, one can't simply ask for more pay?

Guidelines for an Allowance

• Be consistent. Set a day to give the allowance. Agree upon the amount and the limits for spending. Try an allowance contract that both child and parent(s) sign.
• Children need to be able to spend some money however they wish. They need to practice making their own decisions.
• Don’t come to the rescue every time your child runs out of money. If your child is ever going to learn how to manage money, s/he must face the consequences of their own spending mistakes.
• Money is not generally effective as a reward or punishment. Children who are given money for things like good grades, thoughtfulness, or helping at home learn to put a monetary value on character and achievement. Positive behavior can be reinforced in other ways. A special outing together or an expression of appreciation for a job well done often means more to children than a financial bonus.
• The purpose of an allowance is to begin to shift some of the responsibility for goal setting, planning, implementing plans, and making choices for your child. A small investment of time and energy while the child is young can have big payoffs later.
• Guide and advise your children’s money decisions rather than direct and dictate. Encourage and praise rather than criticize and rebuke. Doing so will help develop confidence in their own ability.
• Remember that your children will differ. Respect their individuality. Avoid making comparisons with siblings or other children.
• Be patient. It takes children time to learn to manage money and develop financial responsibility. Frequent references to their mistakes should be avoided; they usually are already aware of them. Overreacting to mistakes with money leads children to believe that money is more important than it should be.