Getting unemployment benefit has been a facet of many childhood years. Maybe you earned a little pocket money for helping around the house when you were growing up, or maybe your parents allotted you a certain amount of money on a weekly basis to spend however you chose.
Many parents are looking to teach their children money skills, and they may wonder if the tradition of handing out allowances is a smart one to continue. As it stands, “79% of parents say they pay their child an allowance,” according to T. Rowe Price’s 14th Annual Parenting, Children and Money Survey, and 59% said they do so because they “want , that their children should understand the importance of working to earn money,” said Investopedia. Another 35% cited a desire to “teach their children how to manage money.”
These advantages are certainly a possible outcome of allocating a quota – but there are also disadvantages worth weighing.
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What are the arguments for giving your child a benefit?
As evidenced by parents’ reasons for giving their children a benefit, the practice can prove beneficial. Possible benefits include:
It can provide a teaching moment. Earning an allowance can offer children a lesson in budgeting and prioritization. For example, “if they spend over one week, they’ll have to budget better the next week,” said US News & World Reportand “these little lessons can be useful in teaching the balancing act that budgeting requires.”
It can give your child a certain independence. Putting money in children’s hands that is theirs to spend however they want means “they don’t always have to ask you for money when they want something,” said Rocket money. It will also give them a safe opportunity to make mistakes, which are crucial learning lessons. “If your child is messing up his money management by, say, spending it all on pizza or giving it to a friend on the school bus, he’s better off making those mistakes now rather than as a college student or youth worker,” said the US News & World Report.
It can demonstrate the value of working for money. Different parents set up the allowance in different ways, but a common method is to tie it to doing chores that can allow kids to “understand the connection between work and reward” that “will set them up for their future careers,” said Rocket Money.
What are the disadvantages of reimbursement?
Despite the possible advantages, giving your children an allowance can also have its disadvantages, including:
It does not automatically translate into a learning opportunity. As it turns out, “there is no power in an allowance alone,” said Washington Post. Rather, parents must be prepared to turn the opportunity into a moment to teach them about money. In some cases, Posten said, “children who receive money or electronic money transfers through an app without guidance and/or restrictions often just learn to overspend.”
It could undermine the shared value of performing duties. Tying earnings to doing chores can “undermine the importance of contributing to the family,” as “children can get the idea that chores always deserve a reward instead of just doing their part for the family,” said Rocket Money.
It can stretch the parents’ budget. “For many struggling households, an allowance is not something they can squeeze into their budgets,” Posten said. This is especially true given all the expenses already associated with children, not to mention the importance of contributing to a 529 plan for their future college costs.
How should you approach determining and paying supplements
If you decide that a benefit is right for you and your children, there are still a number of decisions left to make.
First, consider how much compensation is appropriate. “A commonly used rule of thumb for paying an allowance is to pay children $1 to $2 per week for each year of their age,” Investopedia said. So, “following this rule, a 10-year-old would receive $10 to $20 a week.” That said, “the allowance you dole out should also be tied to your budget,” said US News & World Report.
Also think carefully about how you want to structure the distribution of grants and what lessons you want to teach your child along the way. After all, Posten said, what makes an allowance “unworthy” is if it “comes with the values ​​you want to instill.”
