Parents are faced with sometimes overwhelming challenges in raising their children. Among those challenges is the responsibility to foster a sense of money management. One way you may wish to achieve this is through an allowance.
Statistics are sobering in that Millennials (ages 19-29) have debt 420% over the national average relative to student loans and are 100% and 136% over the national average on debt related to retail cards and auto loans, respectively.1 Among Americans in general, bankruptcy filings are high, with the majority now being filed by consumers; businesses represent only 13% of all filings.2 Another troubling statistic is that repeat filers represent 16% of all bankruptcy cases.2 Learning smart money skills is critical due to the obstacles our kids will face.
There is no “one size fits all” approach to teaching money management, but you may wish to start with an allowance. Our children need to know that when their money runs out, they are not always able to just get it from a machine (or Mom). You can reinforce this lesson by establishing a set amount for which they are responsible for making financial decisions. This will open up opportunities to teach budgeting, the concept of “wants versus needs,” and the most difficult of all (especially for teens): delayed gratification.
Some parents choose to tie allowances to chores and others believe that chores are an essential part of being a family member. Whichever method works for your family is a personal decision, but the parameters of the allowance (when, how much, what it’s to be used for) should be clearly stated and understood—and, then followed by the parents on a consistent basis. Just as we expect our salary to be deposited in our bank accounts on a set schedule, kids need to rely on the fact that every Saturday morning they will receive their weekly allowance.
As part of their learning process, children will learn the consequences of wanting something more than their means allow. This situation can lead to great teaching moments about choices, saving toward a goal, and the fact that we just can’t have it all. Additionally, parents can introduce the concept of planning for charity and helping others financially. These lessons should build upon each other with the end result of having a fiscally aware young adult.
Parents will enjoy the satisfaction of knowing that their children are prepared to cope with the money issues that each adult faces. Additionally, we won’t have life-long responsibility for our kids!
1 Experian.com 2014 annual credit survey; http://www.experian.com/live-credit-smart/state-of-credit-2014.html
2 Debt.org bankruptcy statistics; http://www.debt.org/bankruptcy/statistics/