Giving your kids allowance is a great way to teach them the value of money and saving. According to a 2019 survey, 68 percent of parents give an allowance. But what percent of parents are giving allowance as a life learning experience?
“While parents may be interested in the potential to teach children about money management and budgeting, they may be wary of the time, effort and, yes, money it will take to implement an effective allowance program,” Susannah Snider explained in a U.S. News article.
The methodology behind allowance seems pretty simple. However, you may be doing it wrong. You’re most likely thinking, “How can you possibly make mistakes when giving kids allowance?”
Unfortunately, it is possible. Let’s take a closer look at six common mistakes parents make when giving kids allowance.
1. You’re giving allowance without encouraging good saving habits
This is probably one of the most common mistakes parents make when giving kids allowance. When giving kids allowance, you should encourage them to save part of it. This is an important lesson that helps them develop saving as a habit.
For example, have your kiddo make a list of items he or she wants to purchase with money saved. Once there is enough savings, they can decide to make the purchase, or keep saving. This also deters impulse buying habits so common in today’s culture.
2. You’re not teaching kids about taxes and other deductions
Teaching kids about taxes and other deductions may seem silly when kids are so young. However, this can set kids up for success later in life. No one likes to pay taxes, but it is something we all have to do, so why not give your kids a head start by taxing allowance.
For instance, deduct a small percentage from each allowance payment and put that deduction in a “taxes” jar. Depending on how old your kiddo is, you can even print out a breakdown of deductions for each allowance payment to give them a visual.
But where do the tax deductions go? At the end of a three month period, you and your child can choose a charity to donate the tax money to. The learning benefit is two-fold. Kids learn about deductions, and also get to learn the importance of giving.
3. You’re making daily chores all about earning money, and not about family responsibility
Most parents will give kids allowance based on the chores completed each week. This is one of the most common ways allowance is justified. But when you tie allowance to chores exclusively, your kiddo may lose sight of his or her family responsibilities.
Instead of attaching a monetary value to every chore, make some chores part of the family responsibility, and give allowance for chores that fall outside of those responsibilities.
For example, cleaning the bedroom weekly or vacuuming the living room can be part of the kid’s family responsibilities. But washing the car or picking weeds can be part of the allowance.
4. You’re too worried about how much allowance you give instead of the teaching value it represents
This is a common mistake parents make when giving kids allowance. Shelling out money can be tough for parents, especially when trying to balance family finances. Some parents worry too much about how much they are giving kids, instead of the teaching value it represents.
One way to simplify how much you give in allowance payments each week is to tie it to age. For example, a 4-year old would get $4 each week in allowance. A 5-year old would get $5 a week. And on it goes, hopefully not past 18.
Allowance is a chance to discuss money management with your kids, lessons that will be carried into adulthood. If you are thinking too much about the actual money value, you may be missing the mark on teaching your kids strong financial habits.
5. You’re giving allowance to kids way too late
Kids are far smarter today than ever before in history. Monetary value becomes part of a child’s life pretty early on in today’s digital age. Think about the apps kids are using as early as the age of four.
Apps often have some monetary component in them, from tokens to points, kids learn about value within these apps pretty quickly. But parents are still not giving allowance early on. In fact, many parents believe that allowance should begin around eight years old.
This may be way too late. Instead of waiting for a specific age, begin giving allowance as early as your child grasps the financial value of things. This could be as early as four years old. Getting them started early only helps instill better money management habits later.
6. You’re giving allowance without tying in technology
Whether you like it or not, technology will continue to play a major role in your kiddo’s life. From smartphones to smart home devices, technology is everywhere your kids are. This makes it important to tie technology into the allowance process.
The Treasure App, for instance, helps parents educate kids about money with that essential tech component. Parents and kids can track allowance, tasks, and payments in one easy to use app.
Are you making mistakes when it comes to giving allowance?
Mistakes and parenting go hand-in-hand, especially in the digital age, a time when kids are learning things at an unprecedented pace. The above mistakes parents make when giving allowance serves simply as a refresher. Financial wellness is important, and giving your kids the tools to succeed early can pay off big time for them down the road.