In order to provide experience and lessons around money, many parents, at some point, choose to give their children an allowance. If they dont have a planned allowance strategy when this time comes, its often Google.com to the rescue.
As with most things, people have come up with good, better and best allowance systems. Here is the very best way to provide your kids with an allowance in terms of actually preparing them to handle money wisely on their own.
This system is called the Ultimate Allowance and it involves taking a large percentage of the money that you spend ON your child and running it THROUGH them instead. This allowance system prepares your children to handle money because they are actually practicing with it for yearsand its not just practicing spending. They actually get to learn to make, manage and multiply their money while their at it. And a side benefit is that if done properly, it will save you, the parent, quite a bit of money in the long run.
Heres how the Ultimate Allowance works
Starting around age six, add up the costs associated with the incidental items that you spend on your childthings like hair ribbons, toys and movies or game apps for your phone or special sports shoesyou get the idea. Youre only looking at items that wed classify as WANTS at this point but youre welcome to throw in a few NEED items if you choose.
There are no cut and dry rulesjust figure out what makes sense for you and your child. Normal every day chores, however, arent on the table here. Chores represent childrens active participation in the running and maintaining of the household. Its how they learn to clean, cook and take care of a home.
Now, instead of just buying those items for your child, you give the money to the child instead, with a lot of guidance at first, of course, helping them learn how to budget, shop and spend that money wisely.
They WILL make poor choices but this is how we all learn. Its a good thing.
As they get older, you start adding in the costs for things they NEED to the expenses that youre willing to still cover that you consider WANTS and do the same thing as before. Dont, however, add in expenses like part of your rent or basic food and other living expenses that you should be paying for anything. Theyll have to pay for those expenses soon enough!
In terms of how often you provide the allowance money, you may want to consider breaking the allowance amount into two or even four payments; one on the first and one on the fifteenth of the month or every Friday, for example. Every child has their own way of handling money so some might do fine with it once a month where others might need a little more disciple built in so, in that case, give it to them once a week.
Regardless of how old the child is, if you want to raise an adult who can take care of himself financially, its critical that you start to encourage him to come up with ways of making money on his ownstart a little business, babysit, cut lawns, etc. If you dont do this, he or she will grow up thinking the only way to make money is to get a job and that is far from the truth. We want your child to grow up outside of the conventionally taught concept of having to depend on working for someone else in order to support themselves.
The goal of the Ultimate Allowance is that by the time they leave home, they are fully responsible for buying the things they need and want while also knowing they have the wherewithal to create that money themselves.
The hardest part to this type of allowance is learning to say NO. You cant break down and buy something for them when they make a poor choice. There is no lesson in it for them if you do. You must stand strong in their educational lessons, regardless of how painful they look to you. Remember, learning these financial lessons is so much easier when youre still living at home!
The other critical piece is that you must be willing to be an active participant in this allowance system. As the parent, it is your job to guide, educate and support their educational journey with money, and if you do, you will find its one of the biggest parenting payoffs of all time.
A note about teaching them to save and invest: it is highly recommended that you add a few extra dollars to the allowance amount for the child to start practicing the important financial habit of saving money in a bank account as well as encouraging them to find ways to make money on their own money to save. Just think how great youll feel when your child leaves home with thousands of dollars in both a savings and an investment account. I would say that is a parenting job well done!
[ABOUT AUTHOR: Elisabeth Donati is the founder of Creative Wealth International, creator of Camp Millionaire, Moving Out! For Teens and The Money Game. She is the author of three books: Rocks to Riches for ages 8-12, The Money Jars: Your Magical Money Management System and The Ultimate Allowance, the only book parents need to turn kids into financially free adults.]
June 24, 2015creativewealth
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In order to provide experience and lessons around money, many parents, at some point, choose to give their children an allowance. If they dont have a planned allowance strategy when this time comes, its often Google.com to the rescue.
As with most things, people have come up with good, better and best allowance systems. Here is the very best way to provide your kids with an allowance in terms of actually preparing them to handle money wisely on their own.
This system is called the Ultimate Allowance and it involves taking a large percentage of the money that you spend ON your child and running it THROUGH them instead. This allowance system prepares your children to handle money because they are actually practicing with it for yearsand its not just practicing spending. They actually get to learn to make, manage and multiply their money while their at it. And a side benefit is that if done properly, it will save you, the parent, quite a bit of money in the long run.
Heres how the Ultimate Allowance works
Starting around age six, add up the costs associated with the incidental items that you spend on your childthings like hair ribbons, toys and movies or game apps for your phone or special sports shoesyou get the idea. Youre only looking at items that wed classify as WANTS at this point but youre welcome to throw in a few NEED items if you choose.
There are no cut and dry rulesjust figure out what makes sense for you and your child. Normal every day chores, however, arent on the table here. Chores represent childrens active participation in the running and maintaining of the household. Its how they learn to clean, cook and take care of a home.
Now, instead of just buying those items for your child, you give the money to the child instead, with a lot of guidance at first, of course, helping them learn how to budget, shop and spend that money wisely.
They WILL make poor choices but this is how we all learn. Its a good thing.
As they get older, you start adding in the costs for things they NEED to the expenses that youre willing to still cover that you consider WANTS and do the same thing as before. Dont, however, add in expenses like part of your rent or basic food and other living expenses that you should be paying for anything. Theyll have to pay for those expenses soon enough!
In terms of how often you provide the allowance money, you may want to consider breaking the allowance amount into two or even four payments; one on the first and one on the fifteenth of the month or every Friday, for example. Every child has their own way of handling money so some might do fine with it once a month where others might need a little more disciple built in so, in that case, give it to them once a week.
Regardless of how old the child is, if you want to raise an adult who can take care of himself financially, its critical that you start to encourage him to come up with ways of making money on his ownstart a little business, babysit, cut lawns, etc. If you dont do this, he or she will grow up thinking the only way to make money is to get a job and that is far from the truth. We want your child to grow up outside of the conventionally taught concept of having to depend on working for someone else in order to support themselves.
The goal of the Ultimate Allowance is that by the time they leave home, they are fully responsible for buying the things they need and want while also knowing they have the wherewithal to create that money themselves.
The hardest part to this type of allowance is learning to say NO. You cant break down and buy something for them when they make a poor choice. There is no lesson in it for them if you do. You must stand strong in their educational lessons, regardless of how painful they look to you. Remember, learning these financial lessons is so much easier when youre still living at home!
The other critical piece is that you must be willing to be an active participant in this allowance system. As the parent, it is your job to guide, educate and support their educational journey with money, and if you do, you will find its one of the biggest parenting payoffs of all time.
A note about teaching them to save and invest: it is highly recommended that you add a few extra dollars to the allowance amount for the child to start practicing the important financial habit of saving money in a bank account as well as encouraging them to find ways to make money on their own money to save. Just think how great youll feel when your child leaves home with thousands of dollars in both a savings and an investment account. I would say that is a parenting job well done!
[ABOUT AUTHOR: Elisabeth Donati is the founder of Creative Wealth International, creator of Camp Millionaire, Moving Out! For Teens and The Money Game. She is the author of three books: Rocks to Riches for ages 8-12, The Money Jars: Your Magical Money Management System and The Ultimate Allowance, the only book parents need to turn kids into financially free adults.]
Category: Education & literacy Parenting 5-12 Parenting teens
I started doing this when my daughter was 5 years old. She receives an allowance and gets to spend it in any way that she wishes when we go shopping. She has already figured out that her money goes farther at garage sales than in retail stores. She also figured out that she can borrow books from the library for free rather than spending $16 for a book at K-Mart. She is turning 6 years old now.
An added perk to this way of learning is that she knows how to count to 100 by 5s, 10s and 20s. She also understands subtraction, so she is more than ready for 1st grade in the Fall.