How to teach your kids about money. Step 2: Giving them an allowance

BR talked to Catalina Florea, executive director at Telefonul Copilului, and Alina Galoiu, Aware Parenting Instructor, about how to optimize your child’s chances of having a healthy relationship with money as he or she grows up.

After yesterday we discussed young children’s first financial interactions and the importance of their parents behavior, today we reach the stage when children start to own and use their own money.

Before they get an allowance, a child should be old enough to count money (7-8 years old). The key to a successful allowance is structuring it right from the outset. Make it clear to your children what kinds of expenditures the money is for, and that they are expected to save some of it.

“The allowance is a family convention that can help the child make wise decisions”, Alina Galoiu advises.

Catalina Florea tells us that if the child comes up with the initiative himself of asking for his or her very own “piggy bank”, than the parents should indulge him, but they should in no way feel obligated to fund the piggy bank themselves regularly. It is the child’s responsibility and he will receive money regularly on different occasions: lunch money, spare change etc. He should be held responsible to fund his own piggy bank without constantly asking for extra money from his parents.

There are lots of cases where money is used as a form of “bribe” for performing chores around the house or getting good grades. The experts we talked to advise against this however.

“It is not wise for a child to receive money for performing chores around the house given that these chores are everybody’s responsibility. Of course, if he or she helps out the parents in a professional capacity than it is natural for the child to receive a percentage. It is for instance the case of family business. If the child helps out by cleaning a bed and breakfast or the backyard of the office, he can receive payment. It is important however not to be bribed with money for reasonable activities like schoolwork or chores. There are children that enter educational contests and win cash prizes, but this is different”, Catalina Florea comments.

Alina Galoiu expands by offering concrete examples:

“It can be tempting to reward the child when he takes out the trash or to cut his allowance when he gets bad grades or fights with his brothers for instance but this type of control will teach him to act for the wrong reasons. On the other hand, rewarding obedience will teach him to only pay attention to his own personal gain and as a parent you have no guarantee that he learned important values in life or that next time he will make an effort to resolve a conflict with his brothers in a positive manner. The risk here is that controlling the child’s behavior through money or any other kind of reward is that in the end he will grow up and small rewards will no longer be effective but by that point, the child is used to doing things only for the reward”.