Child Allowance and Money? That’s what my dad always said to me as a kid growing up. Now that I’m an adult (but not necessarily grown up), I find myself saying the same thing to my children - ad nauseam if you ask them
Maroney on Money for June 7, 1998
Like it or not, money plays a fairly significant role in the world in which we live. How ironic then that so little time and effort is spent teaching our children proper money management skills. The financial industry is becoming increasingly complex and yet most of what our children learn is left to chance. As parents we’d be wise not to let that happen.
Like most things, learning about money is best done hands-on. That means providing our children with money to call their own. So where is this money (child allowance) supposed to come from?
A weekly child allowance is a good starting point. This allowance can be paid directly out of your own pocket or consider setting aside part of the Child Tax Benefit you receive.
Child Allowance and Chores for money
Should a child allowance be tied directly to the performance of tasks or chores around the home? Conventional wisdom is that an allowance should be paid unconditionally and on a regular basis. The thinking here is that tying an allowance to chores constitutes nothing more than payment for something that is really simply part of being a responsible family member. Others argue that a gratuitous payment teaches children that money can be had for nothing. So who’s right?
To be honest, I don’t really know nor do I think it really matters. Instead of wondering if you’re taking the right approach, why not pay a base salary each week yet provide an opportunity to earn an additional child allowance by completing certain chores such as washing the car or cutting the grass? With this approach you can cover both bases and leave the worry behind.
Of course, you can simply turn the money over to your children and let them do with it as they please or you can dictate what they have to do with it. The hands-off approach will probably teach nothing more than easy-come, easy-go; total control will teach even less since in the child’s eyes they won’t have received anything.
I prefer the decision-based approach in which the child sets aside money for different purposes (e.g., saving, spending etc.). Consider using a separate piggy bank for each purpose and let the child decide what goes where while removing the “spend it all” option. With this approach, it helps to make payment with a series of coins rather than a single $5 bill or a toonie.
When your child gets to an age where he or she can actually sign their name, take them to a financial institution and help them open up their own bank account. Most financial institutions offer special accounts and information packages designed specifically for young children. Having their own bank account will serve to teach your child the basics of how the banking system works all the while instilling a certain sense of pride.
CHILD ALLOWANCE USING A CHEQUE
When you get to this point, you may want to start using a cheque to pay your child’s allowance. In addition to forcing your child to make use of bank services, this also helps to enforce the idea that having money involves choices and that sacrifices are a necessary part of the spending decision. Each time your child goes to deposit a cheque a decision will have to be made on how much money to withdraw and how much to save.
Needless to say, interest will be paid on the balance in your child saving’s account and they’ll undoubtedly be amazed that the financial institutions are so generous. As balances accumulate a natural progression will involve the purchase of bonds, term deposits and GICs.
Fair enough, but the financial world is much bigger than that and you’d be wise not to stop there. Granted you’ll have to open up an in-trust account, but it is possible for stocks to be held for the benefit of a child. Shares in some obscure company aren’t likely to be of much interest but shares in Disney, McDonald’s or Nike are sure to generate some enthusiasm in addition to some security. There are costs involved and possible tax consequences too, both of which should be discussed with the brokerage house in advance.
Child Allowance teaches lessons
Money doesn’t guarantee happiness and it certainly isn’t worth worshipping but it shouldn’t be ignored either. Teaching your children the importance of money management can serve them well for the rest of their lives so be proactive and get involved.
Jim Maroney is a chartered accountant with Andrews, Brown, Maroney in Maple Ridge.
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