Giving your child an allowance at a young age can be a great tool for teaching them about money management, perseverance, and caring for others for a number of very important reasons. As a frugal dad, I want to teach my daughter to understand that money is a means, not an end. That being cheap and miserly is not a good thing, but that purposely directing your money towards the things that really matter is both important and rewarding (read: being frugal). It is with this mindset that this article is written.
It teaches them about managing money
As a frugal father, I think that having an understanding of managing money is an important skill that I want my daughter to learn. Everyone learns about saving, spending, and debt at some point in their lives and sometimes these lessons are not easy ones to learn. By giving her the ability to manage money at an early age, I hope to help her avoid learning these lessons when she is older and when the financial stakes are much higher.
It teaches them that money is finite
The understanding that money is finite may seem painfully obvious to us as adults, but to a young child, this is not an easy concept to grasp. Unless they are given an allowance, and given it in a way that is meaningful, children can view money as a very abstract thing. Having them save and spend their own money (including paying for it with cash by themselves at the register) makes things very concrete and understandable
It teaches them that there are ‘good’ purchases and ‘bad’ purchases
I allow my daughter to spend her money on virtually anything that she chooses. No, this is not always easy when my ‘parent mind’ kicks in and knows that she may later regret her money choices, but it is important to stand back at this point. Allow your children to make decisions and to face the positive or negative outcomes – this is a very powerful way for them to learn. Hold back. Let them experience ‘buyer remorse’ and the satisfaction of making good purchases as well.
It teaches them about patience
What I have chosen to do for larger purchases is to have my daughter contribute a certain (achievable) percentage of the total cost. In the case of the iPad Mini that she currently wants, I am expecting her to contribute 5%. I set the percentage at a level that is certainly achievable for her, but that requires her to save over time and to consider forgoing other purchases in the meantime. We have spent the past couple of weeks researching the different models that are available and trying them out in stores. She now knows what model she wants and knows how much she has to save.
It teaches them the difference between ‘wants’ and ‘needs’
My daughter knows that I will always provide all of her needs. I have told her so and have always done so. We have discussed that ‘needs’ include healthy and abundant food, clothes that fit her and that keep her warm, a safe and comfortable home, and a dad who loves her unconditionally. Everything else constitute ‘wants’. They are extras. Her allowance is to be used for ‘wants’, paid for either exclusively by herself, or with some help for more expensive items.
It teaches them about spending, saving, and sharing – a.k.a. The ‘Three S’s’ Principle
I have devoted a big part of whole separate post to this ‘Three S’s’ principle and how it works. The important idea though, is that it is important to take our allowance and put some aside to help others and to also put some aside for a rainy day. Please read the post for more details.
It teaches them to be Independent
This is a tough one for some parents. Some parents feel an urge to step in and protect their young ones from making mistakes. The problem with this approach, however, is that it prevents children from learning from their own mistakes and successes. Take a step back. Let your children experience taking responsibility for their choices and becoming independent. They will make ‘bad’ decisions, but they will also make ‘good’ ones. This is one key way by which they grow and become closer to the people they will become as adults. A gradual release of responsibility is key here.
On the Topic of ‘How Much Allowance is the Right Amount?’
There are many ideas surrounding this question. My idea is this; give them enough so that they ‘could’ buy a couple of things each week in addition to saving and sharing an amount as well. The amount should neither be too small as to avoid the temptation to go out and spend it right away (this temptation is key to learning), nor should it be too small that there is no temptation to go out and spend it right away.
As an example, my daughter is five years old. I give her $4 per week. I expect her to save one dollar and share one dollar, but the other two dollars are hers to spend or save as she chooses. I think a target of 25% save, 25% share, and 50% spend is reasonable for us and our situation, but feel free to adjust it to fit your specific needs. Just make sure that all three components are addressed consistently.
One easy way to do this is to set your ‘spend’ amount and them double it for the ‘save’ and the ‘share’ components. Please let us know if you have found a different way that works better for you and your family.
As a frugal dad, I have written some other articles that might be of further interest to parents. Here is a link to my other parenting and children posts.
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Can you think of any other reasons why giving young children an allowance is a good idea? Can you think of any reasons for not giving young children an allowance? We’d love to hear from you if you have something to say. Please leave a comment below. Cheers.
Author: Jason Milburn Google