All parents want their kids to be smart with money. Giving your children an allowance is one way to teach them to save for long-term goals like a bike or a smartphone. Unfortunately, according to the American Institute of Certified Financial Planners (AICFP), only one percent of surveyed families say their children save any of the money.
So is giving kids allowance money really a shrewd strategy? It can be, says Claudia Warszawski, Manager Personal Finance Management Branch for the Navy Federal Credit Union. “Giving kids an allowance helps them think about how much things cost, make choices between things they want or need, and have more appreciation for the things they buy when they use their own money.”
Here are some tips to help you get it right:
- Make sure your children understand why they’re getting an allowance. Some families tie allowance to chores; others may deduct money if a child has misbehaved. Come up with a policy that illustrates your values and talk it over with your child. “Parents should base [their allowance policy] on their own family dynamics and beliefs and the direction in which they want to raise their kids,” says Warszawski.
- Don’t bail your kids out with money for items they should be using their allowance to purchase.”Allowances are an important way to learn financial responsibility but must be given in a way that lets children experience the natural consequences of not earning or saving,” says Edie Raether, a child psychology expert in North Carolina. “Don’t rescue them when they want to go to the movies but have no money because they spent it on candy.”
- Help your children create a system to save part of their allowance. “[Teach them to] make automatic contributions, such as for every dollar earned, 50 percent of it will go into savings,” suggests Raether. Help your children visualize their finances by encouraging them to separate their savings into such categories as spending, saving and donating. “Parents can encourage kids to save and teach them the concept of investing and growing their money by adding a percentage or extra amount to the money the kids have been able to save themselves each month,” adds Warszawski.
- Talk about finances regularly. Money is one subject that rarely comes up at the dinner table. By helping your children plan their own allowance budget, and even giving them a look at the family’s household budget, you can help them become moneywise from an early age.
Giving your children a solid financial education is one way to prepare them for the future. Another is to protect their inheritance with a solid life-insurance policy. Visit geico.com for information on choosing a policy that fits your needs.
By Kathryn Hawkins
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