Al­lowances can help kids learn fi­nan­cial savvy, au­thors say

The Hamilton Spectator - - BUSINESS - ALEK­SAN­DRA SAGAN

Robin Taub paid her two kids a weekly sum when they were younger in an ef­fort to help teach them ba­sic money skills.

Now, they’re liv­ing away from home at univer­sity, man­ag­ing a bud­get, and friends tease them for be­ing money-smart kids, she says — a riff on the ti­tle of her book, “A Par­ent’s Guide to Rais­ing Mon­eySmart Kids.”

Giv­ing chil­dren an al­lowance can help in­still pos­i­tive money habits, fi­nan­cial ex­perts say. At a time when Cana­di­ans are car­ry­ing record loads of debt, that can be in­valu­able.

“Kids do need the op­por­tu­nity to man­age the money start­ing at a young age, where they can make lit­tle mis­takes when the stakes are low and learn from them,” says Taub, a char­tered ac­coun­tant.

She rec­om­mends dol­ing out one dol­lar a week for ev­ery year of the child’s age.

One of the big­gest de­bates for par­ents around al­lowances is whether to tie them to chores.

Taub be­lieves chores should be done be­cause kids are con­tribut­ing house­hold mem­bers, not be­cause of fi­nan­cial in­cen­tive.

But that’s not re­flec­tive of re­al­ity, says Teresa Cas­ci­oli, for­mer CEO of Lake­port Brew­ing in Hamil­ton and au­thor of the chil­dren’s book se­ries, “M is for Money.”

“I don’t think in the real world peo­ple get money j ust for do­ing noth­ing,” she says.

In­stead, par­ents can award kids for do­ing work be­yond chores, like wash­ing a ve­hi­cle, mak­ing the al­lowance a fluc­tu­at­ing sum based on a child’s will­ing­ness to earn it.

Both women say five years of age is a good point to start grant­ing al­lowances.

When kids are young, it’s im­por­tant to give them cash as it helps them dis­tin­guish the value of bills and coins, Taub says. Once they’re older, par­ents can in­tro­duce kids to debit cards and on­line bank­ing by open­ing a chil­dren’s bank ac­count, which most ma­jor banks pro­vide, usu­ally with­out a monthly fee.

But hand­ing them cash or trans­fer­ring money into their sav­ings ac­count doesn’t mean it’s a spend­ing free-for-all. Taub says she gave her kids guide­lines on how much money they should put to­ward im­me­di­ate spend­ing, sav­ing for a big­ger pur­chase, do­nat­ing or in­vest­ing for the long-term. That al­lowed her to talk to her chil­dren about what toys, clothes or other wants topped their shop­ping lists, how much they cost and how long it would take to save for them.

As many kids are spendthrifts, they may try to ne­go­ti­ate an ad­vance in lieu of wait­ing to ac­cu­mu­late enough funds for that pur­chase.

Cas­ci­oli says par­ents should re­sist and hold firm to the pay­ment sched­ule to avoid re­in­forc­ing bad habits that could cre­ate trou­ble later in life when the lender is a bank and po­ten­tially less for­giv­ing than fam­ily.

Lend­ing a child money can, how­ever, present a good les­son on credit and in­ter­est, Taub says.

For par­ents who can’t spare any in­come to­ward an al­lowance, Taub stresses it’s the con­ver­sa­tions and teach­able mo­ments that come from per­mit­ting a child to man­age money that are im­por­tant. She sug­gests al­low­ing a kid to help take charge of some of the fam­ily’s spend­ing, such as on gro­ceries, to cre­ate those op­por­tu­ni­ties.

Of course, not ev­ery f am­ily is com­fort­able dis­cussing money.

It’s OK to tell kids it’s a con­fi­den­tial mat­ter, not to be dis­cussed in the school­yard where chil­dren may com­pare al­lowances, says Taub.

Par­ents also don’t need to go into minute de­tail, she says, but rather can speak gen­er­ally when teach­ing kids about costs like mort­gages.

The most im­por­tant part is find­ing age-ap­pro­pri­ate lessons about money in daily life, she says.

“Some­times you just have to get out of your com­fort zone,” she says.

“It’s no dif­fer­ent than talk­ing to your kids about sex.”

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