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Life and Religion

Creating allowance structure
Create rules to manage financial process
Published Thursday, May 17, 2012 8:07 am
by Wesley Carter

My son, Tre, just turned 13 and has decided that he wants to start getting an allowance. I am resistant because I take care of his needs anyway. Should I comply with his request for an allowance?

Wesley Carter

The decision to implement an allowance infrastructure in your family should be based on whether you can consistently manage the allowance process with your son. Implementing an allowance for your son will require the creation of an appropriate infrastructure to support the development of his financial management skills. Never, ever, ever pay allowance for chores. The completion of chores is the responsibility of all members of a community.

Tre has probably been discussing the merits of getting an allowance with his peers. His request is likely motivated by a desire to have more control of the types of products and services purchased for his benefit. His request for an allowance presents you with an opportunity to teach him about personal finance. As his parent, you are responsible for ensuring that he begins to learn how to manage his money.  

For example, children who receive an allowance should be required to allocate a portion of their allowance to savings and service. Your son should be required to deposit 10-25 percent of his allowance into a savings account.  Schedule time on your calendar to take him to your local bank to open a savings account and make regular deposits.

Ensure that the account is in both of your names to protect against unauthorized withdrawals. Expect some resistance to saving a portion of his allowance and calmly explain that saving money is the most important money management skill. When he matures, he will appreciate the lessons on saving money.

Some parents allow children to use their savings for large purchases. I do not recommend that children be allowed to make withdrawals from their primary savings account until college. By requiring your son to maintain his savings account until college, you are sending a powerful message about personal accountability. Teach him that his primary savings account should only be used to help fund his educational experiences.

Allow him to establish a secondary savings account for large purchases and allow him to withdraw from this secondary account at his discretion. However, he must consistently contribute to his primary savings account. The ability to delay gratification will serve him fiscally and academically.

It is also important to require your son to allocate a portion of his allowance to service initiatives. Require that some portion of his allowance be allocated to your family’s faith based organization or a charity of his choice. All children should be taught the value of contributing to the wellbeing of the environment and the less fortunate.  In addition to money, your family should consistently engage in service projects. Service projects teach unselfishness and a sense of community.

Create a document outlining the rules governing the allowance and require your son to sign. Include specific information regarding the types of purchases that are forbidden. For example, you may want to limit the amount of candy or junk food that your son can purchase with his allowance. Ensure that you clearly articulate the Do’s and Don’ts of purchases based on your family’s values.

As a rule, do not allow your son to purchase clothing items unless they conform to your family’s dress code. For example, if you would not normally approve of the language on an item of clothing, the same rules should apply to his purchases. Explain that any item purchased with his allowance is also subject to be withdrawn if his grades fall below an acceptable level or he does not fulfill his obligations at home.

According to CardWeb.com, the average household has at least one credit card with over $10,000 of debt. As tempting as it may be, do not make a habit of loaning money to your son. Instead, hold him accountable for managing his money such that he has funds available for unexpected purchases. If your son is allowed to borrow money from you at will, he may develop an unhealthy relationship with credit.

Most importantly, if you and your son decide to establish an allowance, require that he stay with the plan for at least six months. Many children ask for an allowance and then attempt to abandon the plan when it is inconvenient. However, this is a teachable opportunity and your son should not be deprived of money management lessons. Welcome Tre to Personal Finance 101.

WESLEY CARTER D.Mgt. provides parenting guidance to committed parents. Email your questions/comments to wesley@kidsbycarter.com Visit www.kidsbycarter.com and follow on Twitter @kidsbydrcarter.


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