As a parent, we all want our children to be successful in life. We are the ones who are to teach them and prepare them for life, so this task is in our hands. One way that you can teach your child to be financially successful is to teach them how to use money. Many kids and teens are hands on learners, so in order to actually teach them about money you need to put some in their hands. This is where the good ol’ concept of allowances comes into play.
What is an Allowance?
There is a huge difference between actually giving an allowance, and just throwing money to a kid without any motive behind it. When I was a kid, I had to work for the little money that I made around the house, and this instilled a work ethic within me and made me realize that money wouldn’t just be handed to me. To make sure that you child develops a good work ethic, you need to make them work for the money that they earn. Moral of the story: kids need to earn an allowance, and not just have it handed to them.
How Much to Pay Your Kids
This matter is totally up to you and how much you can afford to pay your kids for the work they do. If you can only afford 5 bucks a week to pay your teenager, then so be it. On the other hand if you can afford to pay your child more and you feel that they work hard enough to deserve it, then by golly give them a raise! The trick is to make the child have enough incentive to want to do the work, but not to over pay them.
The Real Teaching
To pay your kids money for the work they do is a nice gesture, but it is a waste of your money if you don’t use it as an opportunity to teach your children how to use it. If you want to set your children up for success, then set some guidelines on their cash flow. So that they get used to investing, make your child put aside 10-20% of their allowance to put in a Roth IRA. If they get in this habit with the little money that they receive, then hopefully, they will do the same when they get a job, and you will have successfully secured a retirement for their future. To teach them the value of a dollar, stop buying them things. If you are giving them an allowance and they want to go to the movies or want a candy bar, make them pay for it themselves. Once your teen starts driving make them pay for their own gas or insurance, and they will quickly learn to budget the money they earn. Use the money you give your kids to teach them how to be rich.
Set an Example
In order to make an allowance a successful teaching tool for your children, you have to lead by example. Your kids will look up to you and do whatever you do. If you spend all of your extra money on clothes, shoes, and other pricy things then they will become spenders. Likewise if they see you saving and investing, they will become financially successful by just watching you.