Children Managing Their Allowance
As I wrote in my post about teaching children how to save, we have been using a weekly allowance system for our children and have been quite happy with the results.
However, today I heard of an interesting alternative to the weekly allowance. Since the typical weekly allowance is a relatively small amount, pay your child an annual allowance. The total allowance will still be the same amount but it introduces a few additional lessons for your children to learn.
Children and Money Management.
By paying your child an annual allowance, they will have to do more planning to make their money last for the entire year. That first year they may be overwhelmed and spend everything within the first few weeks or months, but they will have to learn to manage their money if they expect to enjoy it all year.
Learning to Budget.
While closely related to the ability to manage their money, an annual allowance will lend nicely to helping your children learn the concepts of creating a budget. For instance, they may be fond of a particular type of toy and you can work with them to create a budget where they can afford to purchase one new toy every month. Looking at the big picture, they can budget the 60/30/10 split of spending, savings and charitable contributions as well.
Learning from Mistakes.
As mentioned earlier, children are bound to make some mistakes when they see that large sum of money in one pile. To be honest, many adults still make mistakes when they are confronted with a large pile of money. But by letting them make those mistakes now and learning the consequences, they will be better prepared for managing their money as an adult.
The concept of an annual allowance is appealing to me and is something that my wife and I are discussing for our children. It is still early in the year so we may be able to implement this for 2007 or we can plan it out and start fresh in 2008. What do you think about the annual allowance versus a weekly allowance for children?