Learning to Manage Money Through an Allowance
This time of year brings up financial and educational questions in many families regarding giving allowances.
The dilemma always includes thoughts about the benefits of giving an allowance – will the children gain educational value or will the allowance money be used to buy unnecessary things? Will they know how to manage the money, and how can we as parents help them learn to spend their money wisely?
Giving an allowance involves thoughtful consideration and maintaining dialogue with your child, setting family rules about what the money can and cannot be spent on, building a weekly routine for giving the allowance, and giving your child autonomy to make decisions.
At Paamonim, we recommend giving children a regular allowance that allows them to practice age-appropriate money management and decision-making. The benefits your child will gain are numerous, and this time of year presents an excellent opportunity to rethink the allowance issue and consider its inherent advantages.
10 Things Your Kids Will Learn If You Give Them a Regular Allowance
Independence – A small amount of money available for children to use as they see fit (within boundaries set in advance by parents, of course) gives them a sense of independence, control, and maturity. On one hand, you might hear expressions like “this is my money and I can do what I want with it” and you’ll need to address them according to the boundaries you’ve set. On the other hand, along with independence comes responsibility, and these feelings can positively influence children’s behavior in many areas – at home and at school.
The Value of Money – When children ask for and immediately receive money from their parents to buy candy or a toy, they don’t truly understand the value of the money they received. Children who receive an allowance begin to gain a new understanding of its value, think twice before spending it, and consider factors like the price of the item they want to buy relative to the amount of allowance they received.
Budget Management – Money that’s spent tangibly disappears from the child’s wallet or piggy bank and cannot be used to purchase other things. An allowance enables direct learning about the concept of budget and its limitations. Naturally, the allowance will cause children to think about their priorities and understand the principle of managing within a limited budget framework.
Learning Math and Consumer Concepts – How much things cost, what’s considered cheap and what’s expensive, what constitutes a good deal, whether perhaps the more expensive product is actually the better value (contains more quantity, lasts longer, etc.), and of course arithmetic operations like addition, subtraction, multiplication, and division.
Delayed Gratification and Priorities – It’s likely that in the first few weeks, children will spend their allowance on the day they receive it and buy the first thing they see. Slowly, with your guidance, insights will begin to sink in about the ability to delay immediate gratification in order to save more money and buy a more expensive and “worthwhile” product or experience.
The Importance of Saving for the Future – When your child receives an allowance, you can guide them to set aside part of the money they received. Allowance money directed to savings accumulates and becomes a significant amount that enables them to fulfill bigger dreams. The experience of saving serves as a valuable tool for your children’s learning and shapes their future financial perspectives – planning ahead, saving for future goals, and relying only on existing money.
Financial Planning – Discounts and Deals – When children understand they have money that belongs to them and they can spend it as they see fit, they begin looking for ways to maximize their financial capability and get more value for their money. Now comes your opportunity to teach them how and where to find good discounts and deals that will enable them to get more, read the fine print, and compare offers.
Repaying Debts – In every family where giving an allowance is customary, the phenomenon of requesting a loan is familiar. Children run out of money before receiving their next allowance or they want to purchase something big with limited-time availability and ask you for a loan against their next allowance. As a principle, children shouldn’t be given their allowance early so they can learn to use the allowance they received wisely and save for a future goal. However, there are cases where your child wants to purchase something significant and there’s a reason for buying it at a specific time (for example, a birthday). If you’ve decided to allow such a loan – you have a wonderful opportunity to teach your children a very important principle: borrowed money must be repaid.
Price Comparison – With your guidance, your children will practice checking the price of the product they want in several stores. This will enable them to purchase it at the cheapest and best value for them. The price comparison process is an important skill that will serve them in every area.
Money Set Aside for a Rainy Day – Children who’ve been wise enough to save part of their allowance will be able to get out of unpleasant situations much more easily than children who don’t have such means. For example – purchasing a bus ticket or even paying for a taxi if they’re stuck at a friend’s house far away and you can’t help bring them back. Such an experience, even one time, will teach them an important and unforgettable lesson about the importance of saving for a rainy day.
An allowance provides fertile ground for financial education and building healthy foundations for your children’s future financial management.
