As parents, we want our children to grow up and become successful,
independent, and financially responsible adults. But for these hopes to come to
fruition, we need to prepare our kids for the future the best way we can.
To instill financial literacy in children, parents need to expose them to real-world
experiences at an early age. How? By giving them an allowance.
Aside from providing children with hands-on money management experience,
allowances prepare your kids for life by teaching principles that can help them get
through the ups and downs of “adulting.”
Here are some of the most valuable life’s lessons that kids can learn from having an
allowance:
The Importance of Having an Income
Money does not grow on trees — or come out of a machine for free!
Of the many things that your kids need to know about money, one of the first and
most essential facts they have to learn is that they need to earn it. They can’t just sit
around and wait for someone to give it to them.
Allowances don’t always have to be tied to household chores, but it’s also a good
idea to let them earn a small amount of money for the tasks that they take on or
complete. You can either give them a fixed “weekly income” for specific chores
around the house or use a chore chart for kids and pay them for every completed
errand or assignment.
Giving your kids monetary incentives for some of the duties that they do at home
will help them realize that they need to work to get paid. And when they get paid,
they can buy some of the things they want.
Make sure, though, to pay your kids reasonably. Also, make it a point to only reward
older kids for the jobs that they have completed satisfactorily. Don’t settle for shoddy
work. This will teach them the value of work ethics.
Budgeting and Spending Within Their Means
Responsible spending is one tough lesson to teach and live by. The fact that even us
adults, struggle with the idea of spending within our means from time to time,
makes it all the more necessary to instill this lesson in our kids as early as possible.
When it comes to budgeting and spending, the best you can offer your kids is
guidance. Talk to your kids about the concepts of budgeting, needs vs. wants, and
making wise purchases. Make them understand that everything has a cost, and if
they can’t afford something now, then they’ll have to wait until they have enough
money for it.
Cliché but true; experience is the best teacher. Teach your kids about budgeting and
spending as much as you want, but – to an extent – allow them the freedom to
spend their money as they please. If they make purchases, they end up regretting
later on, at least they’ll learn from their mistakes.
To continually reinforce these ideas, involve your kids in some of the financial
decisions at home. Whether it’s budgeting for bills or buying groceries, including
them in the process, will help them identify the necessities from the luxuries and
better grasp the concept of setting financial priorities.
Saving for the Future
Another crucial lesson in financial literacy to teach your kids while they’re young is
the significance of having an emergency fund. Life is not guaranteed; you’ll never
know what’s going to happen tomorrow, and that’s why you have to save up for the
rainy days.
Encourage them to set some of their allowances aside for the future. Explain to
them why it’s important to save money — not only because they want to buy
something but more so for future needs and unplanned expenses. Also, try to
illustrate to them what could happen if there is an emergency, and they
don’t have savings in place.
There are several ways to save and keep money. And while the piggy bank system
works, it does not do too much to prepare kids for the real world. Instead,
consider opening a bank account for kids, so your children can track and witness
their savings grow.
The Concepts of Borrowing and Interest
Now that your children have an allowance, and earn their own money from chores,
resist the temptation to give in and buy them what they ask for. Ideally, they’ll have
to save up or do extra tasks and earn money to purchase these things.
There are times, though, when children want something so badly; they’ll insist on
purchasing it now and will not wait for later. Instead of saying no, make a deal with
your kids. Give them the money to buy what they want but on loan. This means
they’ll have to pay for it with their allowance and, like most loans, with interest. Use
the situation as a learning opportunity to demonstrate how borrowing money can
often lead to added costs.
Allowances and Financial Literacy
Allowances prepare your kids for life by providing them with a steady stream of income that gives them hands-
on experience on how to handle money. They learn how to spend it, save it, and
make financial decisions. Allowances can help promote a sense of financial
responsibility at an early stage in life.
But the big question is, will giving your kids allowance guarantee future expertise at
money management? Well, the honest answer is… no. But taking the time and
making moves to teach your children financial skills as early as possible increases their
chances of becoming financially literate adults.
For more articles like these, feel free to visit our Farther-FamilyVest blog. If you’d like to schedule a no-obligation consultation, contact us today!
Farther-FamilyVest is your local Fiduciary Financial Advisor in Destin and fiduciary financial advisor on 30A!