Monday, October 23, 2006

All About Allowance

I have been asked by more than one parent recently about allowances, particularly for the 2-6 year-old age group to which we cater. I culled through some experts’ books and articles to come up with some pointers that are (hopefully) useful to help you get started:

When? Determine when you think your kids can handle it. I know from experience with my own three-year-old that she is too young (for an allowance, though certainly not too young to discuss and handle money). Five or six seemed to be the consensus amongst experts. Try this poll to see what 5000+ parents think,

Teaching Tool: Let your kids know that allowance is a tool for them to learn how to manage money, but don’t get upset when they manage it poorly. Use it as a teaching tool, not a disciplinary one.

Allowance/Chores: Strongly consider not tying allowance to chores. Though I’ve seen some reasoning to the contrary, all the sources (below) for this post suggest that chores and allowance should be separate. “In my experience, and according to many psychologists and counselors, an allowance should not be tied to personal achievement [grades]…or doing chores around the house…Give an allowance to teach your children the basics of good money management.” -Paul Lermitte from Making Allowances.

Watch yourself: If you’re concerned about how they will treat their money (and you should be), pay particular attention to your own money habits and try to be consistent with what you tell your kids and what you do.

Responsibility: Help them build personal responsibility; let them make mistakes.

Calculating the allowance is a little more difficult and a more personal decision. One prevailing thought (seen on Pearson Education’s Family Education site among others) is to give your child a weekly dollar amount that is half their age ($3/week for a six-year-old). Parent response on this particular site was vehemently against that idea because of the paltry allowance it would create. David Owen in First National Bank of Dad makes a very strong case for a substantial allowance AND providing a substantial interest rate to the children to teach the power of saving and compounding. The experts generally agreed that it’s most sensible to determine what the child will be responsible for (a list that will likely grow as your child grows) and provide them with enough for that. Whenever you start, whether it be four, five or six, keep it simple. Janet Bodnar in Dollars & Sense for Kids (aka “Dr. Tightwad”) suggests making them responsible for one thing (sweets on supermarket trips, trinkets on trips to Target, etc.) Also, give them money in denominations that allow for doling it up and saving, sharing (donating) or spending it (five ones instead of a five-dollar bill).

For more in depth information, the following books were my sources for this post:

Janet Bodnar’s Dollars & Sense for Kids
Joline Godfrey’s Raising Financially Fit Kids
Paul Lermitte’s Making Allowances
David Owen’s The First National Bank of Dad
Pearson Education Family Education Site (featuring National PTA material)

Thursday, October 12, 2006

Kids and Ads

Advertisments are the primary way in which kids are hit with the "spend, spend, spend" message. Parents can help their kids understand how to analyze ads. Commonsense Media has an short, useful paper about how to protect kids under seven from being exploited by advertisters. The main key questions Commonsense lists are as follows:

1. Who created this message?
2. What words, images, and sounds are used to attrach my attention?
3. What is really being "sold" in this message?
4. What does this message mean to me?

These may seem like somewhat adult questions, but with advertisers targeting the massive kids market as young as early as two, it's time we equip our kids with the tools to spend smart.

Wednesday, October 04, 2006

Teaching kids to share - a simple idea

I was talking to a good friend recently and she mentioned a great, easy way to help teach your kids to share their money. If you happen to go to a place of worship that takes donations, have them regularly donate some amount from their "Share" piggy banks (or wherever they're saving it) to church on a weekly basis (or however often you make it). I thought this simple piece of advice was very useful because kids typically have such little money to donate and doing so to larger charities requires a little more work and might even be considered a bit too abstract for them to understand. In the church example, they can see that their money is going to something more tangible and they will feel more a part of the congregation. As any of you with kids know, anything they can do to make them feel more "adult" really makes their day. Of course, we parents are in no rush for them to grow up...but that's a story for another blog.