Tips for parents: Use allowance to teach kids money management
Wednesday, July 18, 2007
MANHATTAN, Kan. - Parents who dole out cash to their kids every time they´re asked may be doing so for a long, long time.
Teaching kids how to manage money typically helps them become financially savvy and independent of parents, said Carol Young, Kansas State University Research and Extension financial management specialist.
The process need not be difficult, said Young, who encouraged families to track spending and reallocate funds to provide an allowance for children and parents.
Discretionary money offers freedom, including the freedom to make spending mistakes.
Given an allowance, a child may rush to buy an overpriced, yet trendy toy that falls short of expectations. The spending mistake can bring disappointment, but will likely be less of a disappointment at age 10 or 12 than decades later, when a purchase may be significantly more expensive.
Parents who believe they can´t afford to give family members allowances are encouraged to track spending for a few weeks or even a month or two, she said. Many who are doling out money here and there may find that such handouts exceed the sum total of what could be allowances for family members. To follow up, here are Young´s suggestions:
* Look for spending patterns that provide opportunities to trim cash flow and reallocate funds for an allowance for each member of the family -- children and adults.
* Consider a child´s age, maturity level, and activities that require financial support, such as renting a band instrument or saving for a tennis racquet, to estimate an appropriate allowance. Include your child in the process to reach agreement about the allowance and the expenses it should cover.
Here´s an example: Start with three spending categories of interest to the child. Then, write up a simple contract to remind each other of your financial agreement. Show the child how to keep a register of income and expenses, and meet regularly to review the register and talk about spending choices. Adjust as needed, adding more categories as the child grows in his ability to manage money and achieve spending and savings goals.
* Decide when - and how - an allowance will be paid, and then pay it regularly. Do not withhold an allowance as punishment.
* Encourage a "save some, spend some, and share some" attitude. Talk with a child about saving 10 percent or more, depending on their short-term (paying half or more of camp expenses) and long-term (saving for college or buying a car) goals, everyday spending and setting aside about 10 percent to help others.
* Resist the temptation to bail children out if they fall short of their goals or run out of cash, and refer back to your agreement. Knowing when - and how much - to save and spend is a key lesson in money management.
* Model responsible financial management. Ask a child to tag along on a trip to the bank or other financial service provider, and then share with them why you are depositing into one or more accounts, such as saving for home remodeling, vacation and/or retirement savings.
* Model keeping track of credit or debit card purchases in an expense register (like a check register). Or, set aside cash so children can see their parents´ spending money, rather than always using a credit card.
"Ideally, the goal is that by the time a child reaches upper level high school, he or she should be handling 100 percent of his or her own money," said Young, who encouraged parents to try not to be critical of a child´s spending choices: "An allowance is discretionary money, but also is a learning tool. Making spending mistakes typically helps to build decision-making skills."
More information on managing money is available at county and district K-State Research and Extension offices or visit Extension´s Web site: www.oznet.ksu.edu/financialmanagement.