Giving your child allowances can pay off
August 7 , 2013
Parents can help children learn about money by simply offering them allowance for simple jobs at home.
Nathan Dungan, president of Share Save Spend, an organization aiming to help people develop healthy financial habits said allowances are required. "It gives a really critical structure and kind of intentional marking point that a child develops to get them comfortable with money."
According to Dungan, allowances should be given when the child is 5 or 6 years of age and the amount should increase with age. He recommends straight cash and allowance being tied to chores since that would help the child to focus on the completion of work.
Nathan said its important to teach children about spending, saving as well as giving. They should also be taught budgeting while receiving help on deciding whats necessary and what's not.
Lewis Mandell, the former dean of SUNY Buffalo's business school did some research on the topic and found out the kids who had a regular allowance had the lowest financial literacy scores but the kids who received an allowance in exchange for chores scored better. The top performers, however, never had any allowance.
According to Mandell, the solution for this is simple and if parents can communicate with the kids about the allowance and explain to them the importance of saving and budgeting, those few dollars a week could provide important life lessons.