Personal Finance for Kids: Reimagining the Allowance

By | Financial Planning

The working world has created a mental cycle among those of us who ply the nine to five: put in your hours, and anticipate the weekly, biweekly or monthly deposit from our paycheques. It’s a simple pattern, and it can unfortunately cause us to think about money on an “autopilot” basis. In addition to the negative effects of this clockwork automation on our own ability to manage personal finances,  we often don’t think about how the preconceived pattern of work and money influences the way we teach children and young people about financial principles.

a girl with piggy bank

Most of us can remember the first time we got an allowance from our parents – usually framed as an exchange to keep us just a bit more responsible and accountable for our health, tidiness and schoolwork on a regular basis. But what about using the allowance as a learning tool rather than a behavioural one?

Many experts suggest that it’s easier for children to learn about financial principles if money they earn is not directly tied to the completion of chores or tasks. An important reason to avoid this otherwise logical system (do work, earn pay – there’s that autopilot again) is that it may create unhealthy power dynamics between parents and their kids. Creating a cycle of repeated work and expectation is antithetical to the best practices that children will need to employ as adults: namely, the ability to make decisions about the future that are not concrete, based in their own appraisal of changing circumstances, and that will remain stable in case of the unexpected.

Instead of simply trading chores for allowance, consider making children’s allowances a monthly budgeting exercise much like the ones adults need to manage. The size of this budget can change depending on your child’s age and the degrees of responsibility you feel comfortable assigning to them.

One other strategy that many advisors have recommended is to establish an understanding of separate accounts (jars, piggy banks, etc.) for separate purposes like long term savings, short term discretionary spending, and even charitable donation. Creating financial independence and confidence, as well as mathematical and mechanical understanding of money, along with social good and a flexible concept of earnings that doesn’t always run on the simplest “do X, get Y” principle, will go a long way toward instilling the roots of good habits that will last a lifetime.

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