November 23, 2020

3-Part Allowance System for Your Future Money Smart Kids

3-Part Allowance System for Your Future Money Smart Kids

What are the three things you should keep in mind in building a foundational and efficient allowance system for your kids?
In most cases, giving your kids an allowance is deemed appropriate—especially if you want your child to learn the ups and downs involved with handling money. Allowance, generally defined as "a sum provided regularly for personal expenses”, is an important concern that all of us parents should have a handful of knowledge about. How we teach kids to use their money today will shape the kind of financial life that awaits in their future. However, more than just expecting to receive a strict amount of allowance regularly, your kids should also have a clear understanding of whether their allowance is an entitlement or earned compensation. Since the world that we live in now is ironically filled with both entitled and exploited individuals, we might want to draw a solid line between the two. Whether you decide to give an allowance just because or only after an accomplished task, it is all up to you (and perhaps, you should consider the present behavior of your child too). Of course, it’s a case-to-case basis, you can try experimenting too! Find what works for you and your kids best.
1. Explaining the conditions of your allowance system. Sit down with your partner and your kids to discuss the potential and limitations of the allowance system you’ve come up with. To make it easier to digest on the side of your kids, we recommend that you and your partner should settle this matter first between the two of you. Of course, it is important to not just impose an allowance system without hearing the side of your children, first. That is, especially if your kids are approaching their teen years. To be clear, we aim that you develop healthy communication with your kids— not that you have to necessarily give in to their every demand. Simply acknowledge where they are coming from and try genuinely considering the issues they raise. Encourage your kids to negotiate, to be outspoken with their needs, and express what they feel like they deserve. At the end of the day, we can only be good parents if we start listening to what our children have to say. Also, keep in mind that this behavior of yours will dramatically shape not only their response to finance-related matters but as well as with how they approach the many aspects of their adult lives in general.
2. Harnessing management skills using financial literacy activities. Help your kids better their allowance management skills by making use of financial literacy activities that include lessons such as basic comparison of assets and liabilities, what differentiates earned, passive, and portfolio income, or why they should stay away from bad debt and what’s good debt on the other hand. For starters, here are some of the considerable financial literacy activities you might want to check out:
3. Rewarding the act of delayed gratification. Before rewarding this act of discipline, make sure that your kid understands the concept well first. We don’t want to see our kids doing things just because they are programmed so. Rather, we want them to do things because they are aware of why they are doing it in the first place. As parents, before expecting anything from our kids, it is our responsibility to detail the basics down for them. Generally defined as the act of delaying pleasure for a bigger purpose, delayed gratification is one of the infamous finance-related behavior almost every parent would want their children to learn. As discussed thoroughly by Positive Psychology, delayed gratification has been proven useful not only to securing one’s financial freedom, but as well as to accomplish other goals related to health, work, or even in relationships. To teach your kids the practice of delaying gratification, you can use any simple savings program. Is your kid asking for something expensive? Then ask him or her to save. You can also strike a deal (i.e. 50-50 division of the expenses). You know your kids best, so be creative!
The world is a tough place to live for people who aren’t given a good place to start with. Take your child steps closer to financial success and strive to make him or her money smart!