by Dan Adair, Island Savings Brentwood Bay –
The subject of giving kids an allowance is a touchy one with most parents – everyone typically has an opinion, either about how much, how it is earned or even whether to give an allowance at all.
As a parent of two teenage children and in my experience helping families build wealth, I’ve seen first-hand how allowance can be an effective way to teach kids money management lessons at an age where they can make mistakes without dire consequences. But I’ve also seen how it can reinforce and reward the wrong behaviours. Here are a few tips I offer members about allowance.
Pay attention to the amount. Whether you tie allowance to chores or a figure based on age, remember that the goal here is to teach your children the value of a dollar. If you compensate too much for too little (ie paying $20 for taking out the garbage) you may not be teaching the lesson that earning money takes a lot of effort and time. As kids get older, too large an amount may be a deterrent to getting a job and too small an amount may be perceived as not worth the effort.
Do not pay in advance – unless it’s a repayable loan. By advancing your kids an allowance, you are reinforcing the cycle of debt that currently plagues most Canadians. Setting financial goals provides the opportunity to talk to your kids about different wants and needs and how much time is required to attain them. Having said that, loaning your child money and having them repay every last dollar – with interest – will give them an understanding of how credit works.
Think long term. A fundamental concept to learn at any age is saving towards a long-term goal. Often with kids, we focus our lessons on small things like toys or treats. Instead, use a bigger ticket item – a bike or summer hockey camp – as the focus for their savings to teach them something more significant.
Encourage entrepreneurial behaviour. As more of the B.C. workforce becomes self-employed, developing entrepreneurial skills in your children early on can pay off in the future. Encourage your kids to think of creative ways to earn money. Paper routes, dog walking or lawn mowing will teach kids that the more work they do, the more they earn. It also teaches them how to promote themselves and their skills – an invaluable life lesson.
Dan Adair is the Brentwood Bay branch manager at Island Savings,
a division of First West Credit Union.