Giving money to your child should not be done without cause. Use allowances to teach your child how to handle money. There is no fixed amount appropriate for every child. Determining the allowance should be guided by a balanced consideration of some basic factors such as the child's age, the family's financial situation, the neighborhood you live in and the coverage of the allowance.
Beyond these basic considerations, you should set up a system of giving allowances to educate them about financial responsibility. Here are some ideas to help you choose the best way to manage your child's allowance.
Establish a pay system. Most parents opt to pay allowances based on either on chores, grades, daily expenses or gifting. The first two are merit-based schemes, which are best if you want to stress the importance of working for money. Allowances based on daily expenses or gifting are much more laissez-faire than the first two where money is given not earned. Use these schemes if you want to stress responsibility and teach a child how to use money wisely.
Let your child budget. Do not apportion your child's allowance into set items. Identifying the amount of money your child should spend on his daily expenses does have any educational value. Let your child handle his own expenses. You can limit the allowance's coverage but avoid dictating any specific amount for the items.
Set up a raise system. Set up a scheme to determine how much increase in allowance your child will receive through time. Age is an important factor to consider in putting up this system since as a child gets older, expenses tend to increase. You can also use his grades as the basis of increase to encourage better academic performance.
Have a regular evaluation session. Take time to sit down and review your child's allowance and his spending habits. Ask your child to list down his expenses and assess whether the amount you give is workable. Find out if there are problems and work-out a solution together. You can also take this time to discuss saving methods, decision-making tips, possible entrepreneurial ventures and budget planning to your child.
Be consistent. Once you've set up the allowance system, make sure that you stick to it. Teaching you child how to handle money responsibly is not easy. Make sure that you follow through with your promises and policies. Avoid making exceptions as this only diminishes the educational impact of the system on your child.
Encourage, not bail out. Along the way, your child will probably mismanage the money and overspend. If this happens, do not bail your child out by giving extra money or simply providing their need. Let your child find a way to resolve the situation. Experiences like these are an important part of his financial education.
It is a wise decision for any parent to train their child in the matters of money early on. It is a challenging but necessary task that prepares a child for independence and primes him for success. At the end of the day, both parent and child will benefit from the rewards reaped by financial responsibility.
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