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Allowance helps children learn how to budget, save money

Children want it, or at least the goodies it can buy, but oftentimes haven’t a clue about managing or accruing it.

But with a few key steps you can teach your little ones the basics of handling the green stuff.

“Money should be an open topic,” insists Barbara M. White, a certified financial planner in Lake in the Hills. Children, she says, “should know that everyone is saving toward something” so that they develop a general sense of the value of money.

To start, White advises parents to teach youngsters to view cash as a tool, and not necessarily as a reward, especially when it comes to doing household chores. “There should be a clear distinction,” says White. “It’s not paying them; it’s developing skills.”

Not quite sure when to begin giving your children an allowance? Assess their awareness first.

“As soon as they recognize the value of a dollar, what money does and that they can buy things with it, that’s the time to start,” says Clark Hallpike, a marketing professor at Elgin Community College.

Resist pressure to simply give children allowances for performing household chores. Instead, White and Hallpike say families must decide on specific duties to tie to an allowance. For instance, baby-sitting for a younger sibling while parents are at work may not warrant an allowance, White says, but baby-sitting when parents are attending a party very well may.

Whatever you decide, set clear guidelines about what determines getting an allowance, what it should be spent on and, going forward, what you plan to pay for — so there aren’t any surprises. “You don’t want your child saying, ‘You didn’t tell me that I had to buy my friend’s birthday gift,’” White says.

Unclear on what to pay out? White suggests starting by giving a child one half of their age per week. So, a 7-year-old would get a weekly allowance of $3.50. You may also want to play banker with smaller ones and simply work their allowance like an invisible checking account. “When my daughter was younger, we took a blank check register and logged her money there,” says White. “I didn’t give her cash money very often.”

Not all payments have to be in cash, either. “I once printed off coupons that would say ‘an extra hour of TV,’” White recalls.

Lots of lessons can be learned by offering children a few bucks. “Allowances teach children to look for value, to know what they’ve bought and to develop a sense that they can’t spend more than they take in,” says White.

Dalma and Brandon Gavin of Bartlett hope to pass along such tenets to their three children, Kennedi, 8, Colin, 7, and Austin, 5. “I let them earn dollars or points toward something that they want if they help around the house,” says Dalma Gavin. “Sometimes, I give points toward cleaning grown-up things like helping in the kitchen or picking up around the house. But I do not pay them or give points for cleaning their rooms; that’s their responsibility.”

Getting money is one thing, saving it can be almost impossible for some. White says think of innovative ways for your children to save because “you want them to have fun with it.” Even get visual. For instance, you can prepare a chart and check off boxes to plot progress. And, as an added incentive, White says, “kick in the final installment or match funds” for big-ticket items.

The main purpose of an allowance is to build good habits. “It’s like planting seeds,” Hallpike adds. But money isn’t all about investing and saving; it’s about giving, too. “When you’re selfless and able to help those in need, you learn about generosity and gratitude,” Hallpike says. “If you have a dollar, and you give away 10 cents to charity and you save 10 cents, you’ll be well on your way to financial freedom.”

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