Monday, April 19, 2010

Six Tips for Effective Allowance

NOTE FROM SUSAN: April is National Financial Literacy Month, which is a good reminder to instill healthy money habits in our kids. Many parents do this by giving their children an allowance. I’ve always been “on the fence” about allowance. On the one hand, I think that kids should have their own money to manage and learn that it takes work to earn money. On the other hand, I don’t think kids should get paid just for doing what’s normally expected in a family, such as keeping their room clean and feeding the pets. So, at our house, we don’t pay our kids for clearing the dinner table or picking up toys, but we will pay for “extra” chores, like washing the car or pulling weeds in the yard. If you implement any kind of allowance system in your house, you’ll want to read these tips by Anton Simunovic, founder of ThreeJars.com.

1. EMPOWER OUR CHILDREN. Responsible experience is the best teacher, so let our kids practice with real money. Truth is, when the kids spend their money and not ours, they get thoughtful -- and fast. And if “mistakes” are to be made, isn’t it better they are made when dollar amounts and consequences are low? So let them practice money, just as they practice sports or instruments.

2. KEEP IT BALANCED. Allot a portion of every dollar your child earns to three jars: one for saving, the other two for spending and sharing. 50% to the save jar, 40% to the spend jar and 10% to the share jar is a good rule of thumb. This establishes healthy money patterns before they leave the family nest.

3. BE CONSISTENT. Pay the right amount on time! Allowance may seem trite to an adult, but to a young child, it’s their source of independent income. Give allowance the proper respect and attention it deserves. It’s a parent’s best tool to teach kids about money.

4. HOW MUCH. Consider the age of your child, your expectations of what the allowance will be used for, and what your family budget can afford. Before high school, kids are often paid their age or half their age in dollars per week.

5. EMBRACE TECHNOLOGY. This generation responds well to the modern uses of technology, and it has revolutionized the way they learn. The internet allows kids to connect the dots between earning money, understanding the tradeoffs between spending and saving, and developing a balanced relationship with money by sharing some of it. Tracking decisions gives kids a picture of how money works.

6. ALLOWANCE AND CHORES. Kids who live in the house have to help manage the home. That’s what it means to be part of a family -- case closed. To ensure follow-through on chores, consider revoking TV, internet or cell phone privileges. This way kids are still given the chance to work on their all-important money management skills.

Anton Simunovic is Founder and CEO of www.threejars.com, which teaches kids how to be responsible with money and the importance of giving back. ThreeJars originated from conversations with his wife, where they decided they wanted to raise their six children with minds for managing money and hearts for helping others. Anton has been a financial investor, operator and entrepreneur since earning his Harvard MBA in 1992, and has sat on the boards of more than 20 for-profit and not-for-profit organizations around the world.



2 comments:

  1. Just in time! My 8 year old just started asking for an allowance!

    thanks for the follow! I am following back!

    Dee
    http://www.free2bmommy.blogspot.com/

    ReplyDelete
  2. Susan, great post. Another site that teaches kids how to be responsible with their money is Allowance Manager. The site is Free! http://www.allowancemanager.com

    ReplyDelete

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