Q. Neither of us grew up with any financial help or advice, and we both have siblings that are totally financially irresponsible. Somehow we have managed to do pretty well with savings, and the only debt we have is our mortgage.
We have two children ages 6 and 8 and want to help them be good money managers when they grow up. One thing we thought about was to give them an allowance. Do you think they are old enough for an allowance? If so, should it be tied to chores, how much should we give them, and do we restrict what they can buy? What are other ways we can help now to ensure that they will achieve financial independence in their adult lives?
If you think your children can understand and have an interest in money, they are probably old enough to receive an allowance.
Before starting an allowance, you may want to play a money game. You could buy a game, find one online or your make your own. To make your own, you could cut some pictures out of old magazines of things your children may want to buy with an allowance. Write a realistic dollar amount on the items. Give each child enough money in different denominations (pennies, nickels, dimes, a dollar, etc.) to buy some, but not all, of the items. They can take turns selecting items and seeing if they have enough money to pay for them. If they dont have enough for what they want, they can skip their turn and not buy anything. After every turn they receive more money.
In this way, you can teach them about the different coins and dollars, as well as what money can buy. You want to teach them that if they buy candy every week, they wont ever be able to buy the toy or CD they want. But if they save money and wait to spend, they will be able to buy something more meaningful. This is not unlike the adult that realizes spending $12 or more going out for lunch every day, instead of brown-bagging, can be unwise. Eating out five days a week at $12 a day adds up to $3,120 a year. Packing a lunch three days a week would save up to $1,872 a year, which could go toward something more consequential.
Some good online sites to find money games and information about teaching children about money are jumpstart.com and ixl.com/math. Teaching about giving to others is also important. You may decide that a certain portion of an allowance should go toward savings, another toward a charity of the childs choice and the remaining to spend as desired (on things that meet with parental approval of course). ING ( https://home.ingdirect.com/kids-savings-accounting) and some other online banks offer child saving accounts. ING currently pays 0.75 percent interest with no minimum balance and no fees.
Linking chores to an allowance is always a debate. Some feel that paying a child for chores instructs them that work has value. Others feel that chores are a part of living and making a contribution to the household. You might consider giving a certain amount not linked to certain chores that you expect from your child such as picking up their toys, making their bed or setting the table but allow them to make more for non-routine chores. These could include raking leaves, taking out the trash, shoveling snow or dusting. An Internet search reveals that anywhere from 25 cents to a dollar for every year old the child is makes an appropriate weekly allowance. So a 6-year-old would receive between $1.50 and $6 a week and an 8-year-old between $2 and $8 a week.
If any readers have advice on this subject, your comments are welcome.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624