February 12, 2019
Through the eyes of a child, adults may seem to have an endless amount of money, even if they know it doesn’t actually grow on trees. However, when young children are given opportunities to earn and receive an allowance, money becomes a more tangible object that they can then learn about first-hand. Here are some benefits to consider if you are contemplating giving your child an allowance.
Learn to appreciate the value of money.
From a young age, children start exploring cause and effect relationships. In order to understand the true value of money, they need to apply this way of thinking to earning and receiving money. Over time, they will begin to realize that the effort they put into earning money is ultimately rewarded, and this will encourage a newfound respect for dollars and cents. As they receive money in a controlled way, they may even begin to recognize that a certain amount of work or saving for a certain amount of time will give them the means they need to buy what they have been eyeing. This may encourage them to practice saving and budgeting, while also helping them understand that they can’t always buy whatever they want whenever they want it.
Practice personal money management.
As children earn, spend and save money, they are given a variety of opportunities to learn valuable lessons. Even mistakes – like spending money too quickly or not keeping it in a safe place – can encourage them to make smarter decisions in the future. A major benefit of practicing money management at a young age is that they have the comfort of a safety net and limited financial responsibilities. This gives them room to make their own choices, but with the oversight of an adult who can offer guidance as they weigh options and make decisions. Money management skills that are practiced early will continue to develop and strengthen as financial responsibilities become more complex over time. Giving your child an allowance is a great way for them to get a jumpstart on becoming a savvy spender and saver.
Create opportunities to talk about money.
Talking about money with children is an easy way to promote financial literacy. Casual conversations are excellent learning opportunities for impressionable minds. An allowance opens the door for a variety of conversations covering topics like: how the values of different coins add up to a dollar, smart ways to keep money safe, and creative ways to earn money. When financial skills are developed during everyday encounters, lessons are more impactful in the long-run because concepts can be directly applied to life.
Setting your child up for long-term financial success is invaluable. While there are many ways to encourage positive financial habits, giving your child an allowance is an easy way to practice earning, saving and spending. Implementing an allowance system may even help you budget better for funds that are allotted for your child – a win-win!
Jim Oosterman is the Senior Vice of Melrose Bank and a lifelong resident of Melrose. He can be reached by telephone at 781-665-2500, online at melrosebank.com, or on Facebook at facebook.com/MelroseBank.