AUSTIN, Texas (KXAN) — Parents giving kids a few dollars a week fear they aren’t teaching their kids the right message about money.
How do you know if you’re really getting through to them or just becoming a “human ATM?” Brian Pearson, financial professional from American Benefits Exchange, spoke with KXAN in Austin about five mistakes parents are making when giving kids an allowance.
Q: Is it a good idea to give your kids an allowance?
“I believe an allowance is a great way to start teaching financial responsibility,” said Pearson. “In a lot of households, money isn’t discussed very often. In fact, often times kids are told that family finances are none of their business.”
However, “in an era in which teenagers will be making six-figure decisions about college and how much student loan debt to take on, we really owe it to our kids to teach them as much as we can about financial responsibility.”
Q: What are some of the mistakes parents make when giving kids an allowance?
Starting too late
Pearson recommends giving kids an allowance when they can distinguish the difference between wants and needs. This usually happens around preschool or kindergarten age.
If you start early, kids will develop an appreciation for money; both saving it and using it. That appreciation has a much better chance of sticking with them throughout their lives, according to Pearson.
If you need some help getting the money conversation started, check out this guide with some resources.
Focusing Too Much on the Amount
On average, kids in the U.S. get $67.80 per month and one in four get $100 or more per month.
“Whatever you choose to give your kids, the amount matters less than the conversation you’re having with them about money,” said Pearson. “Start with a dollar a week or so for each year of the child’s age and divide the money among three containers: save, spend, and give. This is like a mini-version of an adult budget. You’re teaching them the basic foundation of finances.”
Tying all the money to chores
Most parents have their kids do chores for their allowance. However, some parents feel kids should take on chores and household responsibilities because they are part of the family and everyone should be contributing.
To combat this “you can pay for chores that are outside of their regular weekly or daily jobs. Just make sure they equating ‘effort or work’ with ‘money,’” said Pearson.
Giving money with no strings attached
Agree on items you expect your kids to pay for.
When they’re in middle school, have them pay for their own snacks at school or new video games. As they get older, they can cover larger purchases. Let your teen manage a lump sum you’ve budgeted for back-to-school clothes.
Bailing them out
“If kids make mistakes, let them experience the consequences. Don’t bail them out.”
If they get their allowance on Friday, but discover something they want on Wednesday, have them wait. When their money’s gone, it’s gone.
Q: What if they ask for a raise?
That’s a great time to teach them about negotiating. When is the last time they were given a raise? Are they doing something extra to deserve a raise? What amount of the raise will they save and what will they spend?
“The most important thing to remember is to not just hand over money without a valuable lesson to go along with it,” concluded Pearson.