One of the most important life lessons you will have to teach your child is the value of money. The most effective way to teach financial management is by giving them an allowance. How much you give them and how often you give them money will depend on your own financial circumstances. Below are three important factors to consider.
Choose an amount appropriate for your child’s age
Consider what your child will have to cover with this allowance. The allowance of a 7 – 13 year old will differ from a 13 – 16 year old. Ask yourself the following:
Could your child perhaps contribute to his/her monthly data bill (if they have a cell phone)?
Could your child perhaps cover their own entertainment expenses (a movie or afternoon out with friends)?
Propose to increase your child’s allowance as they grow older.
Teach your child the value of a budget
A great time to do this is during the holidays. Sit with your child and determine how much allowance he/she will be getting for the holidays. Draw up a plan and a timeline on how this money will be spent and for how long it should last. Remember, allow your child space to make his/her own choices but STICK TO THE BUDGET!
What to do if your child asks to borrow money?
See this as the perfect opportunity to talk to your child about credit, loans, and interest. Keep it simple but keep it clear. Here are three basic concepts your child needs to understand:
Credit cards are not free money.
If you don’t pay the full amount on your credit card each month you have to pay a fee (interest rate).
People who pay their credit bills on time are offered a lower interest rate.