It’s important to start teaching your kids financial responsibility at a young age. An allowance is a good way to begin to teach basic concepts like how to earn and save money, and investing.
Not only does an allowance help kids understand the concepts above, it can also teach responsibility, counting skills, and independence. When and if to start instituting an allowance with your child is an individual decision but here are some basic guidelines you may want to follow:
Consider Age
You don’t have to wait until your child can count or comprehend the concept of money. Non-monetary incentives like TV time or working toward a toy they really want can work just as well. However, they should be able to comprehend why and what they are working for, otherwise setting goals and rewards will be pointless.
Start Small
A great rule of thumb is small rewards for small chores. If the chore is too big or the reward takes too long to achieve your child will become disinterested. Household chores are good to start; helping Dad take out the trash or cleaning up their room can make your work easier too.
Clarify the Rules
Make it crystal clear what it takes for your child to earn their reward. Make the rules clear to avoid potential conflict and disappointment later.
Once your child has nest egg built up, try borrowing money from them once or twice a year and pay them interest on your loan. Borrowing can teach them the basic concept of investing and returns.
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