In this Mint Answers roundup, we feature questions from Mint users that focus on kids and money: when to start allowances, how much to give them, teaching kids about budgets and the value of money.
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At what age should I begin giving my child an allowance? How much should I give them? I have a five year old and a seven year old. I have heard to start at about 5 years of age and give $1. Then give $1 more at each birthday after that. What do you think is appropriate?
-I have a 3-year old and we have started giving him an allowance: $0.30 a week. He does have to earn it however. Since he is only three, he has small “chores,” such as putting his plate on the counter after dinner, keeping his room tidy, and behaving at daycare. He then must save 1/3 ($0.10 into his piggy bank) and give away 1/3 (to church/charity/wherever he wants, even to his baby brothers’ piggy bank if he decides). The final dime is his to do with whatever he wants. We also keep track of his money on the fridge: if he wants to trade Mommy or Daddy $0.35 for a quarter and dime so he can get gum from a quarter machine, we check to make sure he’s not “dipping into” his 1/3 savings and just using the extra money. He absolutely loves this system, which we’ve based on Dave Ramsey’s teachings.
-I don’t think allowance should be a reward for doing chores or helping around the house, that seems to send the message that you are not expected to do those things as a good person, you are expected to do because you are paid. It creates an odd carrot and stick effect and it stunts the development of internalized rewards; the only reward they know is money. But I also don’t think allowance should be given just for the sake; it should be used as a tool for learning money management skills. Instead of figuring out how much to give, instead figure out where you think your child should be spending their own money. Maybe you always buy them some candy at the grocery store. Instead of buying it, provide them an allowance that would allow them a small candy for each visit or a better one fewer times a week. You explain that they have to buy it with their own money and help them reason through the choice to buy something they don’t want as much now or to save for something they want more. As they get older, extend this to more things.
-Never. You shouldn’t ever just give your kids an allowance. What message are you teaching them? That it’s ok to mooch? My 3 yr old (yes 3) gets one dollar when he helps to pick up his toys. Why $1? Because he can’t swallow it like he can swallow change. Then we put it in his piggy bank and when he gets a few bucks I’ll take some out and re-use them.
-To skirt the whole hand-out issue and still give your child some personal finance practice, I’d recommend the following: Take some area of spending that you’re already doing for your child – clothing is a classic one. Sit down with your child and collaborate on a budget for it. Give them an allowance for that type of spending that is equal to the budget. Turn the purchase decisions over to them (only exercising veto power on very rare occasions – perhaps when the purchase seriously violates some family rule/value). Do not allow them to exceed the budget.
-I believe kids should be an active member of the family so ideally, nothing. With that said, kids do need to understand the meaning of money and making money doing chores is a start. I would say enough so that at the end of the month he/she has enough to buy something they can enjoy. I.E. Video game @ $60, therefore $15 a week.
-Of course it’s a personal choice, but when I was 13 (which was only 10 years ago) my parents gave me an allowance of $20.00 per week with the stipulation that they would not be giving me money to buy Christmas presents for others when the time came. It helped me learn how to spend what I wanted and save what I needed.
-Depending on if he does chores around the house, I’d say $5 to $10.
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I am a single mother, and find it imperative that my children learn about finances early in life. My 8 year old son and 5 year old daughter recently asked if they could open their own bank accounts. Although I am proud of their interest in saving money, I am concerned that it may be too early for them to take on that responsibility. At what age do you think it is appropriate for a child to open a personal account with a financial institution?
-My credit union has a kids club for 0-12 year olds. Besides a lower minimum deposit, they have games, a newsletter, etc. that focuses on kids. You can never be too young for fiscal responsibility.
-As with most things related to raising children, it depends a lot on the maturity of the kid. A debit card tied to a checking account is a great way to learn responsibility that will be required for independent living. Some are ready at 12, and some adults will never be ready. I don’t remember exactly when I opened a checking account, but I remember getting a job the week I turned 16, and I already had one. My parents still covered a lot of my real living expenses (groceries, housing, clothes, insurance) but my checking account was a great way for me to learn financial responsibility. I had to budget for things like gas, car maintenance, music, eating out, trips to the mall, you know really important stuff at that age. With the prevalence of debit cards and check cards, I would say a lot of kids should be learning how to manage this at age 14 or 15. The younger (or less mature) they are, the more guidance and oversight they will require. In my opinion 18 is too late.
My children and their friends want to set up an old fashioned lemonade stand. Do I have to worry about the IRS coming to my door asking for my kids tax records? How does that work?
I am not a tax advisor. But I believe that as long as they are under $400 in income, they should be fine. That’s a lot of lemonade. I would be more worried amount permitting and permissions from the local government. It seems every year there is some debacle of overzealous local officials interrupting the young operators.
Do you have a question of your own about kids and money? Go to Mint Answers and ask away! While you’re there, feel free to answer questions from other community members