Why Allowances?

An allowance can be a good teacher because it allows children to manage money in a safe environment. The sum involved is small and any mistakes made will not be too damaging. It is not like when they are adults and the mistakes made can cause them to lose their house or car.

Allowances can teach them financial responsibility. For example, when your child wants to buy a new toy, she can be asked to save part of her pocket money to get it.

Depending on the age of your child, she may need help to achieve her goal (i.e., the toy). This gives you an opportunity to help her develop a spending and savings plan so that she will know how much and how long she has to save to buy her toy.

Saving for a toy will teach your child about delayed gratification. A child who has enjoyed the fruits of saving up for a toy may be less likelyto be taken in later by the various choices of instant gratification like credit cards, easy payment and hire purchase payments.

Thus allowances give children a chance to make mistakes that are not too costly, to think about the value of what they want, to experience anticipation if they save for a few week and even to feel the consequences of overspending.

Do not make a practice of giving additional money if your child overspends. If parent is quick to bail out the child, the child will not learn the consequences of overspending.

Should your child overspend, she will then have to get a loan from you to meet her expenses. Set up repayment period to give her some practical experience in using credit.

But if your child keeps overspending it should be time to put her on a simple budget.