TIPS ON GIVING ALLOWANCE TO KIDS
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For children, financial literacy begins at home.
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The first step is doling out pocket money, which
gives them financial independence.
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It also offers parents the chance to educate
them about the value of money.
1. Fixing the
allowance amount
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Splice the financial learning of your kid in 4
stages or age bands: 5-8, 9-12, 13-15 and 16-18 years.
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Start the allowance at around 7 years or the age
you are comfortable with depending on the kid’s ability to handle money.
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If you don’t think he is ready to take on the
responsibility, delay the allowance by a few months or a couple of years.
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Revise the amount with age as the child’s needs
and preferences change.
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Start with small, weekly payouts and increase
these progressively to a monthly amount.
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It is easier for a 7-8 year old kid to manage
small sums over shorter periods than a bigger lum sum over a longer period.
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Fix the amount after enquiring with other
parents to avoid peer pressure for the child.
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However, keep your own budget in mind before
doing so.
2. Give a piggy bank
or open a bank account
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Financial independence can trigger a spending
spree in your child.
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Start with a short talk on maintaining a fine
balance between spending and saving.
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Encourage the child to save before spending, a
habit that can ensure financial security when he starts earning.
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Initiate him into it by gifting a piggy bank or
opening a bank account for him (most banks allow kids’ accounts at 8 years).
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Guide him into depositing the money received on
festivals or as gifts from relatives in the account.
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Open him up to the idea of setting short-term
goals, like buying a favourite toy, books) in order to incentivize savings.
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Pitch in occasionally if the cost is high and
the child is sincere about saving for a goal.
3. Monitor his
spending, but let him decide
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Don’t hamper his financial freedom by incessant
pointers on how much money he should spend or what he should buy.
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Set a framework and ground rules for spending,
instead of fixing targets for him.
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Allow him to set his own goals, be it short-term
or long-term, and let him decide on the means of getting there.
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Let him make mistakes while doing so, and guide
him when he needs your help.
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Assist him in strategizing, but let him choose
his own course.
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However, monitor his spending and ensuring that
he is not misusing his allowance by indulging in gambling, or buying alcohol,
cigarettes, etc.
4. Don’t bail him out
financially
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It is better that children make mistakes in the
process of managing their financial responsibilities at a young age with fewer
funds than suffering bigger losses later in life.
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However, do not bail him out when he loses money
or makes wrong spending choices, or falls short of money at the end of the
month.
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Providing additional funds every now and then will
not create any discipline or induce any learning for the child.
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Since borrowing or lending is common among
teenagers, advise your child against the pitfalls of debt or excessive lending
and monitor such dealings.
5. Don’t pay for
errands
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This is a mistake made by most well-meaning
parents.
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Don’t offer the child a chance to pad up his
allowance by making money the incentive for academic achievements or carrying
out household chores.
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Specify the difference between duties or
obligations and money-making opportunities, between earning and rewards.
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Also, don’t deduct any amount from his allowance
in case of misbehaviour, but find other means to discipline him.
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Discourage inculcating greed in the child, or
always expecting to be compensated for every minor errand or behavioural
improvement.
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Let him learn value for money and labour.