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If your kid has his hand in your pocket more than you do, you’re ready to consider giving an allowance.

There’s an age-old adage that if you give a man a fish he’ll eat for a day but if you teach that man to fish he’ll eat for a lifetime. The same goes for kids and money: If you give a kid a toonie, she’ll probably blow it on candy, but if you teach her how to manage that toonie wisely, she’ll be better able to handle her finances as an adult, and will perhaps have lower dental bills to boot.

Inevitably the question of whether to give an allowance comes up in most homes. Some parents are more comfortable giving money to their child when asked or needed (let’s call that allowance-on-demand) or as a bonus or incentive for a good report card or winning a game. Other parents, perhaps prompted by constantly reaching into their wallets, prefer to give their children money on a regular basis with the caveat that they stop asking for handouts. And many of those parents tie the allowance to chores or other odd jobs around the home.

Financial experts agree that an allowance not only provides children with a sense of ownership, but also gives them the tools needed for financial stability well into the future. It can teach children how to save for something and most importantly, provide the independence they so desire in their tween years.

“It’s important to teach our children realistic practices for both spending AND saving,” says Gail Vaz-Oxlade, personal finance guru, successful author and host of ‘Til Debt Do Us Part. “To learn how to manage money responsibly, children need an income they can rely on at regular intervals. The experience of handling a steady flow of cash will teach many fundamental skills, including how to manage a cash flow, how to plan ahead, the skill of setting goals and how to save to satisfy a goal.”

However, every family has different values and ideas, not to mention income levels, so there really is (unfortunately) no easy blueprint for allowances. In fact, a 2008 poll by Environics and CIBC of 469 Canadian parents found they were divided on the issue, with one half supporting tying allowance to chores and good behaviour.

Tips on Doling Out the Dough

If you choose to give an allowance, choose an amount that reflects how much money your child needs, as well as your financial circumstances. For example, do you expect your child to buy her own clothes or pay for lunches?

Get a bank account for your kids so they can watch their money grow. Many financial institutions have packages to help initiate children into the world of money. Gail Vaz-Oxlade recommends contacting the bank ahead of time and setting an appointment for your child to open their account. This will ensure they receive the attention and care they are entitled to – just like an adult customer would receive.

Inspiration for Saving is an online tool that supports parents in teaching their kids healthy spending habits. Rather than just giving children an allowance and leaving them on their own to figure out what to do with it, ThreeJars helps kids see where their money is going – a feature that creator Anton Simunovic believes is vital in how children understand money.

“The path to financial literacy starts young,” Anton explains. “Spending habits are formed early and run deep. As soon as kids start asking [for money] and acknowledging that it takes money to do things, parents should begin to introduce the concept of dollar management.”

Anton started ThreeJars when he began noticing negative spending patterns among his six children. With his children aged 11 and younger receiving an allowance, Anton became concerned that he and his wife weren’t encouraging positive habits. “When our kids received an allowance there was a strong desire for our young children to immediately spend what they received – a race to the dollar store for needless knick-knacks and candy. It was really hard to happily encourage longer term goals and thereby teach them about delaying gratification.” He realized there had to be a way to teach kids to do more with their money.

The ThreeJars system works just as it sounds. On the website there are three areas or ‘jars’ children can access – spend, save and share. Parents sign up and automate allowance through IOU’s which represent real money. From there, parents can also decide how the allowance will be divided between the three jars. ThreeJars keeps track of what is owed, what has been paid, savings growth and where money is being spent.

With this system children are able to practise and build their financial habits, a feature Anton believes is imperative to the success of the system. “Parents know that to be great at anything, children must practise – it’s the same with money.”

Here at ParentsCanada we have moms on both sides of the issue.

“My husband and I work around the house and don’t get paid, so we think the same should apply to our girls,” she says. “We started giving them an allowance when they were around six so they could learn about saving and make some of their own purchasing decisions.”

Does it work?
Slowly but surely. “They still wish they had more money and will often ask for advances so they can buy a sweater or something I wouldn’t pay for, but they’re becoming more savvy about price tags and learning to be patient.”

Even without an allowance, Starr feels she
is able to show Rebecca that nothing comes for free and that Rebecca is becoming responsible for every dollar she spends. “When Rebecca asks for, needs or wants money she must do chores like clean her bedroom or sweep the floor. She must also get good marks in school and do her homework nightly,” Starr says. “As a result, she gets the money or object whenever she might want it.”

Does it work?
Despite the fact that Rebecca is unable to really see where her money is going, Starr maintains that her daughter has developed a good sense of financial awareness when it comes to her own money. “I really feel she is learning about saving and spending,” says Starr. “She has her own bank account that she puts money in and before she buys something she goes through the steps to see if she really needs/wants it.”

Amanda Bloye works for Today’s Bride, a sister publication of ParentsCanada. She never received an allowance growing up, but wishes society (and her dad) would accept the practice for adults.

Published in May, 2011.

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