Many parents have questions about children and money. Should children be given an allowance? Should they have to work for the money they have? How do children learn about managing money?
Children learn about money from those around them. They watch their parents spend money and learn from them. They watch their siblings and friends and are influenced by them. They watch television advertising and are encouraged to buy this or that.
Developing a sound sense of money and how to use it takes years. Parents can help their children understand and learn money management skills by including them in appropriate discussions about money matters (e.g., the cost of a family vacation or a new television) and demonstrating good money management skills (e.g., prompt repayment of bills and the wise use of credit). Research indicates that parents are generally a child's greatest financial influence. Children need to learn how to earn an income and evaluate how they've spent it.
Allowances and earnings can be very effective tools for helping children as they learn to live within their means. One of the best experiences a child can have is a time when there is not enough money to buy everything that he or she wants. That is the way that a child learns the concept of scarcity and how to make spending choices and live with the consequences.
Sometimes children will purchase something that parents consider useless or silly or something that is cheaply made and breaks easily. When that happens, remember, it is important for children to learn from their own mistakes without your criticism. Experience, both positive and negative, is a great teacher.
Allowances should begin as soon as children are capable of counting and understanding the exchange of money for buying things. You will need to coach your children and give them guidelines as they learn to manage their allowance. The allowance should cover their needs (e.g., school lunches), plus some money for personal use, savings, and sharing (e.g., charitable donations) and the amount should increase as children grow older and their needs change. Consider matching a child's savings, like an employer matches a worker's 401(k) deposits.
If your child runs out of money before his next allowance, there are several alternatives. One is to let him or her learn from past mistakes and do without. Another option is to loan the needed money with an agreement prior to the loan on a repayment schedule and, perhaps, interest.
Frequently older children will want to earn their own money. They enjoy the independence of earning rather than asking for money. A job can help your child develop a responsible and positive attitude toward work and provide an opportunity to understand money in terms of the time, effort, and skill required to earn it.
One caution about work, however, is that paid employment should not consume all of your child's time. Kids also need time for school activities, studying, sleep, family responsibilities, and fun. Research shows that 15 hours of paid employment per week, or less, is best for most high school students during the school year. Like everyone, children need a reasonable balance in their life.