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Rhythms and reasons of allowances for kids

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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 don’t have a planned allowance strategy when this time comes, it’s 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 years…and it’s 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.

Here’s how the Ultimate Allowance works…

Starting around age six, add up the costs associated with the incidental items that you spend on your child…things like hair ribbons, toys and movies or game apps for your phone or special sports shoes…you get the idea. You’re only looking at items that we’d classify as WANTS at this point but you’re welcome to throw in a few NEED items if you choose.

There are no cut and dry rules…just figure out what makes sense for you and your child. Normal every day chores, however, aren’t on the table here. Chores represent children’s active participation in the running and maintaining of the household. It’s 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. It’s a good thing.

As they get older, you start adding in the costs for things they NEED to the expenses that you’re willing to still cover that you consider WANTS and do the same thing as before. Don’t, however, add in expenses like part of your rent or basic food and other living expenses that you should be paying for anything. They’ll 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, it’s critical that you start to encourage him to come up with ways of making money on his own…start a little business, babysit, cut lawns, etc. If you don’t 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 can’t 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 you’re 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 it’s 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 you’ll 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, 2015

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