This is highly debated and often one person’s theory differs from another. Do you give an allowance? If you do give an allowance, why do you do it and what are the benefits? If not, what tools do you use to teach them financial responsibility?
We have all been at the store and our child will not stop asking to buy this or that. Sure, Grandma or Auntie probably say ok and buy them something. As a parent, we know that is not always best and, whether something is purchased or not, we probably have a conversation on the topic in an attempt to have a “teachable moment”.
My grandmother was very tight with her money. I watched her live on very little and her bills were always paid on-time. A lot can be learned from seeing that – we realize the difference between wants and needs – and now doesn’t that sound like another one of those “teachable moments”.
We have all seen the other end of the spectrum where the spending far exceeds what they take in. My niece says she wants to make a lot of money. Well, as we all know, you can make a lot of money – and you can spend a lot of money. I am not sure how I would spend the LOTTO if we hit and not sure how you could spend that much but we have seen it done and in a very short period of time.
So, how do we teach financial responsibility? Well, first, we have to explain what it is when they are five years old, 10 years, a teenager and beyond and it isn’t easy because the message must adapted to their age and the situation. Our scout leader recently had a discussion of what it means to be thrifty and the importance of saving. Overall, financial responsibility is about choices and an allowance can help teach that because it gives you an opportunity to have financial discussions and relay your family values.
Whether you choose to give an allowance, have them do chores in order to receive money, or neither, it’s your interactions that make a difference.
Eric T Hersman CPA