Economy and Kids!

Learning About Earnings

In deciding how to provide your child with an allowance, make sure both parents in a two-parent household agree beforehand. An allowance may be based on the performance of chores, or it may be given with no strings attached. In some families, it’s a combination of both. What’s important is consistency. If you believe children should earn an allowance, stick to the rules you set up and don’t apologize. Likewise, if you feel a certain amount is enough, and your child complains that other kids get more, explain to your child how you’re doing what is right for your family. Here are some additional tips on setting allowances:

• Start by determining who gets what, when, and from whom.
• Write down the rules—or use illustrations for young children.
• Pay on time, and have rules for advances. Be sure the child understands that an advance must be paid back, or withheld from future allowances.
• If the allowance is tied to the performance of chores, decide in advance what the penalties will be if the child does not complete the chores.
• Don’t withhold money as punishment for unrelated acts.
• Stick to the rules.

If you have more than one child, tailor money management lessons to the age and needs of the individual child. Treat each child separately, determining, with his or her input, a fair price for chores or allowance.

When children are old enough, they may earn money from a newspaper route, babysitting, or mowing lawns. Encouraging children to take on occasional odd jobs will help them better understand how money is earned. In addition, a child can build a sense of responsibility and self-discipline—traits that can last a lifetime.

Children tend to get bored with ideas quickly, so encourage your children to take short-term jobs around the neighborhood, on weekends or during vacations. With an end in sight, they can get out gracefully if they lose interest. Or, with the end in sight, you can encourage them to “stick it out” or see it through.

An older child may get a part-time job after school or during summer vacation, providing a more regular stream of income. Use this opportunity to talk with your child about savings and checking accounts, and about using credit wisely. It’s always important to set a good example for your children; they are more likely to follow your suggestions when you provide pointers on the importance of saving ATM receipts and balancing a checkbook. Make it a goal to help your child understand the importance of personal financial planning before your child is ready to leave home for college.

If your child could save just one dollar a day, he or she would have $365 in a year. If this money is invested at a 4 percent return, compounded daily, the table on this page shows how it will grow.*

  Savings Savings + 4% Interest
One Year     $365     $372
Five Years  $1,825  $1,929
Ten Years  $3,650  $4,487
Thirty Years $10,950 $21,169

*Returns mentioned are hypothetical, and are not intended to reflect any actual investments.

Of course, young children can’t save a dollar a day, but an older child, if he or she has a part-time or summer job, may be able to. The chart could give them an incentive to do so.