How to best use allowance to teach kids about money

Probably the most often asked question by parents is “Should I give my kid an allowance?”    There is no simple answer, but giving kids the experience of handling their own money is a great teaching tool.  The problem with allowance is when it is given with no responsibility involved.

Kids who get allowance that is matched to certain spending areas or in exchange for chores do much better with money once they are out on their own.  Read more about what studies are proving…

…By Eileen Ambrose, The Baltimore Sun

The conventional wisdom is that allowances make children responsible money managers as they learn to budget so they don’t run out of cash.

But Lewis Mandell, professor emeritus of finance and former dean of business at the State University of New York in Buffalo, says that’s not always the case. In fact, says Mandell, who has studied financial literacy, certain allowances may even be hurting kids.

According to Mandell, high school students who didn’t get an allowance performed better on a financial literacy test than those who did, especially teens who received stipends with no strings attached. And children receiving unconditional allowances — no chores required — also were less motivated to get a job or go to college, he says.

Read more of the article:    http://bsun.md/y1mb4y

Free Game Event: “Blast the Money Trap”

Monday,
June 20th
6:30 – 7:30
Free Event!
Appetizers Provided

Come join the Money Academy at Neo Cantina where kids and parents will play “Blast The Money Trap” .  In this highly interactive game,  players get the opportunity to make investments and build their assets in a fun, kid friendly style.

The game is uniquely oriented to kids perspective and capacity to understand money at their age.  This provides them real life examples that they can easily assimilate into their own lives.  They begin to see the value of saving to invest vs. only using money for spending.

Every family that attends receives
$25 Tuition Discount to Money Academy Camp!

Game playing starts at 6:30 and completes at 7:30.   Appetizers will be served and the event is FREE!  You must call to reserve your space at the table.  For kids ages 7 – 15 and their parents.

Inspire Kids to Start Saving to Invest

As adults, we want to give kids our hard earned financial wisdom that we have learned along the way through our own mistakes.  Well, remember how well you listened to your parents when they did the same with you?  Especially the “Save to Retire” mantra we tell kids all the time.  They’re thinking, “I’m NEVER going to be that old!”

Teaching them how to balance a checkbook or add dimes and nickels doesn’t help them understand the larger ideas they are really curious about.

So what is the access to introducing sound financial habits and beliefs to our kids?

Answer:  Explore with them how money works (when you spend it,  it’s gone!)  Then look for the many ways that money can be used to make more money (compound interest, investing).    Encourage them to find ways to multiply their money, bring in money, build their own financial stability vs. focusing on how they will spend it.

Look for those teachable moments to explore ideas together.  Remember, their perspective is not the same as yours.  Their curiosity could open up some new ideas for adults, if we just let ourselves be in the inquiry with them instead of pretending we already know everything about money.   And do we really?

It’s all about how Money Goes Out!

The ongoing question from parents about kids and money is always rooted in how to give kids money and how much. The real important financial experience that kids need from a young age is how to make choices with the money they do have.

Janet Bodnar, Kiplinger’s Personal Finance Editor offers a few ideas in this recent blog.

An allowance is the best hands-on tool for teaching children how to manage money. As I always say, kids will spend unlimited amounts of money as long as it’s yours. When their own cash is on the line, it’s a whole new ballgame. An allowance teaches them to make choices, which is the key to smart money management.

At what age should parents start an allowance, and how much?
Age 6 or 7 is a good time to begin. Children are learning about money in school, so they know that ten dimes equal four quarters equal one dollar. Money is an abstract concept for kids, and at this age they’re gaining the maturity to understand how it works and how far it will go. I think it’s reasonable to start with a basic weekly allowance equal to half a child’s age. You can adjust that up or down depending on what expenses the allowance is expected to cover.

Here’s the biggie: Should the allowance be tied to chores?
I don’t think the basic allowance should be tied to chores. Kids should do chores because you ask them to; if they made the mess, they should clean it up without expecting to be paid. Besides, after years of writing about kids and money, I’ve learned that parents often have trouble keeping track of the chores that children do (or don’t do), so the system falls apart.

That doesn’t mean that kids get the money with no strings attached. The basic allowance comes with financial responsibilities—kids have to do financial chores, such as paying for their own collectibles or refreshments at the movies (elementary-age children); mall excursions and after-school snacks with their friends (middle-school kids); and clothing and gasoline (high school students).

Should parents have a say in what teenagers do with income from a job?
By all means. It’s fine for parents to require teens to save part of their income for college. And teenagers should be at least partially responsible for paying for the other big Cs of teen life: clothes, concerts, cars and cell phones. Once they start driving, they should pay for their own gasoline. If they’re on the family cell-phone plan, they could pay for their own phone plus any overage charges. And concerts and other entertainment should be on their tab.

Should I give my kid a credit card?
No. I’ve laid out a four-step plan for teaching kids how to manage plastic, starting with cash, then ATM cards, debit cards and finally credit cards. Once they’re comfortable managing their own debit card and balancing their checking account, they can apply for a credit card—on their own. They’ll build their own credit record, and yours won’t be on the line.

Blog Radio Interview on Kids and Money

The best way to have more security with your money is to increase your confidence and knowledge around it.  Money Academy Founder, Gayle Reaume, was a recent guest on the show.  Join Financial Woman radio host Camille Gaines as she shares money and related topics that will inspire and motivate you to not only own, but embrace your financial journey.

http://www.blogtalkradio.com/btrplayer.swf

Listen to internet radio with Camille Gaines on Blog Talk Radio