Among many parenting discussion boards, there is always an ongoing discussion/debate about whether a parent should give an allowance to a child or not. With or without an allowance, it is the parents’ responsibility to teach their children financial responsibility. Hence, a parent must have a master plan before the child turns into a toddler.
Financial consultants suggest parents to start teaching their children about finances by the age f two years old. When I was being brought up, my parents taught me that money was earned by hard work on chores not by just being a child. Giving an allowance is not enough education to teach a modern day child. The experts suggest teaching exactly what to do with the allowance.
Here are some of my personal suggestions to teach the modern day child. Whatever the amount whether it be a $5.00 a week to $5,000 a week allowance, the money should be taught to split it among 4 different categories for financial success.
Category #1: ¼ of the allowance should be placed in a savings account for college. Sure ¼ of a small allowance may not seem like a lot but to a small child it feels like a million dollars. Once the child is 5 years or older, you can your child can setup a savings account in a bank. Before that time, there ¼ of the allowance can be placed in a special place. Some banks have special age requirements, so double check with your personal bank of choice.
Category #2: ¼ of the allowance should be given to charity. It is important to teach children at an early age about sharing with others through charitable work. There are some great charities out in the world that children can understand even at a young age. For instance, World Wildlife Fund allows children to pick out an animal to “adopt” and/or Philip Hayden Foundation allows a child to help a toddler from China with expenses to afford life-saving surgeries. In my family, my two nieces have helped out these two organizations on different occasions. After a donation has been made in the name of your child, the organization will actually send a document honoring the contribution to the organization. My nieces have these documents framed and posted on their bedroom walls. If you do not have a specific charity to support, have your toddler place the money in a piggy bank and then each Christmas have the child purchase a toy for Toys-for-Tots out of this money.
Category #3: ¼ of the allowance should be placed in the church offering plate. If you are not a Christian, this ¼ can be setup for something else. It is important for Christian parents to teach the importance of giving back to the church as a part of the religion. The bible states that followers should give up 10% of income to the church – toddlers are not an exception to this rule.
Category #4: ¼ of the allowance should be allowed for the child to have some fun. Just as it is important to learn how to save it is important to teach how to have a little fun. Also, for a child to be able to purchase something with his/her own money means more than the parents paying for it out of their own pockets.
A strong financial background starting at the toddler age will raise money wise adults. Day after day there are reports on the news of college students being in large amounts of debt, if only their parents taught their children about financial success we would not have to hear about these sad stories. It is the responsibility of the parent/guardian to teach about finances and the importance of saving for the future along with teaching about charity. If you have a toddler in your household, start today and teach how to have financial success.