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All about allowance

Allowance. It’s a hot topic and everyone has an opinion on it. Do you give your children money? How much is reasonable? How often? Do you link it to the chores they do or to their age? Do you advance them money? Do you give them bills and coins or get them started learning how to manage their money online?

Fret no more: we’re answering the biggest questions about allowance so you never again have to wander into the www.waspsnests.buzz that parent forums can be, asking about giving your children money and getting your head mawed off.

Talking money

The main reason to start giving children an allowance is that it can help them learn at an early age the value of money and how to manage it. Allowance can be an effective way to teach kids lessons in money management at an age where they can make mistakes and the consequences aren’t dire.

Put it this way: if they miss a payment on their new Ninjago set, they don’t lose the house. On the other hand, it is a time when they could start to build the wrong habits and behaviours when it comes to money.

According to recent research, kids who get an allowance tend to be more financially savvy when they grow up than those who don’t, they are more adept at managing their money, and they better understand the value of money.

And that’s what you want as a parent. You want your kids to go into the world and not feel crushed by having to “adult”. You want them to feel prepared, while understanding that money doesn’t fall from the sky.

So be intentional: the best thing you can do to help your children understand financial literacy is to have frequent open conversations with them.

The chores chart

Parents sometimes object to giving their children a financial incentive to do household chores. Children, they argue, should be expected to help out around the house. To clean their rooms, to set and clear the table, even to vacuum the living room every now and then.

And to a certain extent that is true. There are certain things that we need to learn to do just because we have to (and to keep the roaches away). The flip side is you want your children to understand that money does not come freely: money is earned.

So what do you do? Basically a little bit of column A, a little bit of column B.

It is fair to expect your children to do certain chores for free (no that’s not violating child labour laws) while compensating them for other tasks. You could get creative and make a chores chart for them, where you write down non-negotiables (making your bed, cleaning your room, set the table, etc.) as well those chores they can earn some mullah for.

As your children get older, encourage entrepreneurial behaviour. As more and more of the B.C. workforce is self-employed, developing entrepreneurial skills in your children early on can pay off big time in the future. Encourage your kids to think of creative ways to earn money. Paper routes, collecting recycling, dog walking or lawn-mowing will teach kids that the more work they do, the more they will earn. It also teaches them how to promote themselves and their skills to others—an invaluable life lesson.

The age method

The biggest question when it comes to allowance is, “What’s a reasonable amount to give?” We’ve all heard the warnings: Don’t give them too much and spoil them rotten or you’re a bad parent, but at the same time don’t give them too little and make allowance seem worthless or you’re a bad parent.

Parents get it: there’s a golden mean to everything but finding out what that golden mean is can seem like pulling teeth (not the tooth fairy kind where you wake up the next morning to a silver dollar).

Here’s a great method to determine how much allowance your children should get: every week, give them one dollar for every year of life they’ve lived. (If finances are tight or your brood is large, you can adjust the frequency or the amount so you’re not drowning.)

With this brilliant system, your 5 year-old will get $5 a week, your 8 year-old will get $8 a week, and so on and so forth until that glorious day when they land a job at the local McDonald’s and you don’t owe them a cent!

Spend or save

An important part of any conversation about money is talking about delayed gratification and savings. This is where building financial discipline is core, and seeing the fruit of that discipline, in increased savings, helps cement good habits.

A fundamental concept of sound financial management at any age is saving up for a long-term goal. Often with our kids, we focus our lessons on small discretionary spending like saving for toys or treats. Instead, thinking in bigger goals (like a wakeboard or summer hockey camp) as the focus for their savings teaches them something more significant: knowing what you are saving for and seeing your savings add up over time actually makes it easier to save.

Help your children see their savings in a visual way. When you see your savings grow, it motivates you. Here are two ways you can do that::

  • The mason jars method: have a SPEND jar and a SAVE jar. Your kids feel the rush of excitement as they get to see their dollar-dollar bills and coins slowly fill the jar.
  • The digital banking method: open a chequing and a savings account and teach your children to set up automatic transfers and to check on their accounts regularly. Most financial institutions offer free accounts for children. Envision Financial’s staple chequing account, the Simply Free Account®, provides free chequing, free Interac e-Transfers®, no minimum balance and zero fees. Plus, they won’t have to upgrade to a student or adult account.

Learning to give

Finally, allowance is an excellent way to start teaching your children about charity. If you use the mason jar method, you can add a third jar labeled GIVE. If you are teaching your children about digital banking with their digital dollars, you can set up automatic payments.

There are many worthy causes out there and children are naturally empathetic and wish to help those who are more unfortunate. Talk about issues and research organizations together.

Read about The Full Cupboard and Envision Financial’s commitment to reduce hunger in our local community.

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