Special to The American
Money Smarts School of Finance for Children suggests using the economic crisis as a teaching opportunity to share good money management skills with children. These skills are designed to help position them to make responsible manage money decisions as adults.
One way to accomplish this is by paying an allowance to your child. Here are just a couple of reasons why paying an allowance will help both you and your child.
Paying a scheduled allowance presents the opportunity to help your child learn how to handle money responsibly. Set the rule that a portion of the allowance is to be deposited into a savings account at the local bank. If your family attends a church, set a portion to be placed in offering, and a portion to be spent according to the child’s choosing.
Establishing parameters will provide a guideline for the child regarding priorities when it comes to managing their money. It also empowers the child with the authority to make a decision as to how he or she would like to spend the remainder of the allowance.
Paying an allowance is a great way for the parent to keep track of how much money your child receives from you. Paying an allowance affords you the benefit of budgeting miscellaneous money spent on your children. Once your child’s allowance is spent, there may be an occasion to grant advances until the next allowance payment.
However, be sure to set very clear guidelines when it comes to advances in allowance. Explain that this is an advance, it will not become a habit, and all advances are to be paid back to the parent with interest.
The interest charged on allowance advances should be very minimal. The point is to teach responsible money management skills and not to discourage the child. For example, if a child received a $5 allowance advance from her parents, the interest rate on allowance advances is .0020. If not paid back within seven days from the advance, the child would owe an additional one cent for interest. At allowance time, the child would receive her $10 allowance, but would then pay $5.01 back to her parents for the previous advance.
This would teach the child that while an advance is available should she need it, the advance will cost her additional money. It is best to make management decisions that will not put her in the position to need an advance or loan.
If you would like more information regarding the Money Smarts School of Finance for Children or would like to register your child for classes, send an e-mail to dmartin@moneysmartsschoolforchildren.org .