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Why Your Child’s Allowance Should be Tied to Their Chores

There are literally thousands of how-to’s and self-help books for parents, but truly the only real way to learn how to raise a child is to do it! Luckily our growing team of parents at AbbyBank have some true hands-on experience when it comes to upbringing and explaining money management to little ones.

One of the most common questions parents have concerning their child’s financial education is, “How do I teach them about money using an allowance?” There are a number of ways you can utilize a recurring allowance to help your children understand both the importance of good money management and a sound work ethic. Below are two of our favorite strategies:

Example #1: Earn Your Extras

In this scenario, allowances are guaranteed to an extent. Every two weeks, give your child a pre-determined amount of cash, say $5.00. That money then has to be split evenly between their educational savings and their retirement savings (yes – retirement savings!) While this money is technically theirs for future use, they have no tangible money to immediately spend. The fun part is the commission. Assign a small dollar value to various tasks around the house. Ensure things like making their bed, or doing their homework are required to do no matter what. However, extra work such as mowing the lawn, cleaning the bathroom, or cooking dinner, earn a predetermined amount of commission. Paid every two weeks, this commission is then theirs to spend between three areas: save, spend, and donate; but they MUST allocate at least $0.50 in each area. This lesson teaches three primary lessons; the first is that housework is a part of everyday life and it doesn’t come with a paycheck. The second lesson is that working hard pays off, and the third is that creating a plan or budget for your money allows you to use it as a tool instead of using debt as a burden.

However, extra work such as mowing the lawn, cleaning the bathroom, or cooking dinner, earn a predetermined amount of commission. Paid every two weeks, this commission is then theirs to spend between three areas: save, spend, and donate; but they MUST allocate at least $0.50 in each area. This lesson teaches three primary lessons; the first is that housework is a part of everyday life and it doesn’t come with a paycheck. The second lesson is that working hard pays off, and the third is that creating a plan or budget for your money allows you to use it as a tool instead of using debt as a burden.

Example #2: Ambition Is Important

For this example, there is no guaranteed allowance on a weekly or monthly basis. In this scenario, all funds are accumulated via commission. How that commission is earned is determined by you. This can be the number of extra chores completed, or how many additional books were read in a week. It could even be your child’s dedication to physical activity each day. You would still show them the three areas of saving, spend and donate along with explaining about retirement. You could even offer an option to match your child’s contribution when they go above and beyond their task. Through this valuable learning experience, you can showcase to them that a solid work ethic is pinnacle to success.

However you decide to help your children understand the complexities of personal finance, AbbyBank is here to support you. Stop in today, and ask about our designated children’s savings accounts. We’d love to help your family get started on your journey to financial success.

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