Figuring the amount of allowance for children to develop healthy behaviors around their perception of money is a delicate balance. Giving too little won't help your children develop good money habits if you give too little. If you give too much, they will not learn the value of money. Many factors go into fixing an allowance.
Your child's age The older your child, the larger the allowance should be.
Your family income: You should unilaterally calculate how much you can afford to allocate allowances.
Local community standards: This may be a point of contention, but, realistically, the neighborhood you live in can certainly influence how much allowance you give your child. What your child's best friend receives may not be a deciding factor, but it is a factor nonetheless.
What the allowance is intended to cover: If you expect your teenager to buy essentials from the allowance, it must be sufficient to allow for this extensive purchase. A less generous allowance is acceptable if you supplement an allowance with spending money or pleasure.
One major factor you should not consider in fixing an allowance is the child's gender. The predominant way children learn is through modeled behavior. Caretakers must keep in mind that the budget should not be contingent on a child's gender at a young age.
A good rule of thumb in setting allowances is paying one dollar for each year of your child's age every week. For instance, a 7-year-old would get $7 every week. However, this rule of thumb needs to be adjusted for roughly fifteen-year-olds and above older teenagers.
Based on added age, the child automatically has more expenses. For example, a child in college would have to pay for more necessities, such as toiletries and furniture. Of course, a critical factor that will cause the most significant amount of adjustment post-Covid and international turmoil is inflation. As inflation affects everyone, children are no exception to the effects of inflation. I suggest parents should reasonably increase the allowance so as not to erode the child's buying power.
An allowance is a fixed amount of money parents give to their children by pure definition. A fixed allowance gives children money, generally every week, regardless of how much they accomplished throughout the week. This allowance is usually a predetermined amount and does not change irrespective of the child's performance.
There are several positives to a uniform allowance. One, it sets understandable expectations with upfront terms. Second, it gives children structure and predictability, which can help them manage finances in an organized manner. Third, children can budget their money by accounting for longer-term management.
However, some parents feel that a fixed payment is too low or does not motivate their children to complete chores and other household tasks. However, a fixed allowance removes the possible adverse side effects of bribery. If receiving money becomes the sole incentive for a child to complete chores around the house, it breeds a framework that can easily lead to corruption. If that happens, children will bypass the meaningful lesson of becoming responsible, money-managing adults.
Some parents also refer to chore-based rewards as an allowance, but it is technically a job. Unlike the fixed method discussed previously, a chore-based job system relies on your child's performance to earn money. Parents pay their children in exchange for assigned tasks.
With this framework, parents can use a positive financial incentive for a child to negotiate more income in return for completing more chores or non-routine tasks. A child's work ethic is assured approval in a chore-based job framework. The positive side of chore-based jobs for children is that parents can provide their children the opportunity to feel a sense of accomplishment and financial independence- two indicators of a financially secure adult. Nonetheless, parents will be walking a fine line between positive financial incentives and financial bribery- and to the ultimate extreme, extortion. Parents should emphasize the motivations behind completing chores: feeling a sense of accomplishment, practicing discipline and consistency, and being productive.
Perhaps the most balanced approach is a system that combines a fixed set allowance with the chore-based job. This will give the child the benefit of receiving consistent money that they can then use to budget and spend on necessities and the ability to earn more by responsibly and constantly performing errands.
As a finance attorney, I think the most prudent and reasonable approach is to stop increasing your child's allowance when they reach their teens years, especially sixteen and above. You may expect them to supplement their allowance with their earnings at that age, whether babysitting or other after-school jobs. To raise self-sufficient and responsible adults, I suggest that parents encourage their older teenagers to work for earnings- in either a formal or informal setting.
Because money is central to making daily living transactions and thriving as adults, parents should provide children with a working knowledge of money. First, to help children become financially literate, parents should have open discussions about money, and many parents bypass this step because it has been a taboo topic for generations. My most financially savvy clients had parents who discussed finance management with them at a young age- and by a young age, I mean pre-puberty.It is an ultimate truth that everyone values the money they earn differently than the money they receive.
Because children learn most effectively by observing modeled behavior, I suggest parents make a spreadsheet of their expenses and profits and explain it to the child if they do not already do it consistently. Parents should then go on to assist their children in creating their spreadsheet of possible expenses.
Creating the categories is the most crucial step here- parent and child should work cooperatively to determine the anticipated expenses, such as movie expenses under the luxury category, shoes under the necessities category or basketball under extracurricular expenses. Once these categories are determined, the parent and child should then calculate the number of chores a child would need to complete every week to cover all expenses, factoring in any fixed-amount allowance. Next, the parent and child can work cooperatively to assign the number of chores required for the child to reach their goal.