Money Savvy
by Darla Kashian
Parents' Corner on Allowances
When should I start giving my child an allowance? Your child needs to be old enough to understand the meaning of money—namely, don’t eat it or flush it down the toilet. They should understand the value of different coins and be past the trick of trading a dime for a nickel because the nickel is bigger. To teach kids to count money, I use a simple exercise in which once a child can sort and count a handful of change accurately, they can keep it. An allowance can start after this exercise is successfully completed.
How much should I give her/him to start with? The allowance should be enough to make some meaningful decisions about what is important to them when it comes to spending. The challenge is ensuring that if your child wants to purchase a bigger-ticket item, that the allowance be small enough to require a savings strategy. My advice is $1 per year of age, with a raise on their birthday. Whether it’s a monthly or weekly allowance depends a lot on your family’s means.
Should I expect my child to save some of the allowance? The formula I recommend is save 20 percent, share 20 percent, and spend 60 percent. I guarantee you it?ll make that 15 percent 401k contribution seem manageable.
Should I consider the allowance compensation for doing chores? In my view, children should have basic responsibilities as a member of the family, which are not compensated by an allowance. At the same time, it is worthwhile to give kids an opportunity to earn additional money outside of their basic chores. Necessary jobs like lawn mowing, laundry, or addressing holiday cards could fit the bill. During my teen years, my parents hired me to make dinner every weeknight.
Disclosure: The opinions expressed are those of the author and are not necessarily the same as those of RBC Wealth Management. RBC Wealth Management did not assist in the preparation of the material and makes no guarantee as to its accuracy or the reliability of the sources used for its preparation. RBC Wealth Management, a division of RBC Capital Markets Corporation, Member NYSE/FINRA/SIPC.
