Ask Dr. Manfroy
Q: My kids think money comes from the ATM! How can I help them be smarter about money?
Money, or lack of it, is a frequent cause of concern in our lives. Making wise choices about money is a critical skill in the adult world.
Where do we learn money management skills? Not in school, not on the playground and certainly not on TV. Too often, young adults learn financial realities via a series of monetary mistakes. The results can range from excessive credit card debt to an adult child moving back into your basement.
Money Management Starts at Home
Once you've recovered from that visual image, take heart. You already have the perfect learning tool to teach the basics of money management to your children: the allowance. It's a simple, powerful, real-life way to educate your kids about money.
Because they're learning with small sums of money, an allowance provides a safe environment for kids to make their own mistakes. Children learn to save, learn to spend and learn to give back. Yet surprisingly, only about half of all children are given this opportunity.
If you think you can't afford to give your child an allowance, consider how much money you're already spending – and use that.
How Much Allowance?
Decide what you want your child's allowance to cover: movies, music, video games, other entertainment, food extras and toys. Then calculate what you currently spend on these items. That is your starting point for the allowance.
Another reasonable benchmark for a weekly allowance is one dollar for each year of a child's age.
Don't withhold allowances for bad behavior or incomplete chores. Conversely, don't pay for good grades or sports performance.
Remember, an allowance is a learning tool, teaching your child how to budget, save and spend. That is impossible if you don't keep the weekly sum constant.
Consider using the "80/10/10" monetary approach. Of the initial weekly sum, the child saves 10 percent, shares 10 percent (donations, tithing, gifts for others) and uses the last 80 percent for discretionary spending.
It does take a little thought and effort to create an effective allowance. But it's probably less effort than carrying your child's stereo equipment back into the basement.
Pierre Manfroy, MD, is a local pediatrician with Northeast Pediatrics, serving as an editorial consultant for Young and Healthy.
