Allowances can be a useful tool for teaching children important financial literacy skills. With creativity and care, allowances provide valuable real-world practice in budgeting, saving and financial decision-making. Tailoring an allowance plan to suit a child’s age and learning needs is key to their financial education.

Give Developmentally Appropriate Control

The amount and type of financial control given should be age-appropriate. Young children around age 6 benefit from small amounts (£1 per week) to cover basic purchases like treats or comics. Use this to introduce concepts like earning, budgeting, and saving up over time. Around ages 9-10, a raise to £5 per week allows learning around longer-term saving for larger goals.

Older children benefit from increasing levels of control. A £10 per week allowance for a 12-year-old fosters independent budgeting, saving and spending. Teach the value of tracking expenses and using banks to safeguard larger amounts.

Match Pay to Expectations

Children should understand how allowance size matches the financial expectations placed on them. Pay too little, and it’s difficult for children to fund their own activities without frequent parental top-ups. Pay too much and money has little perceived value.

Communication is vital. A £3 per week allowance may cover what you expect a 6-year-old to buy themselves. But inform children what the allowance must cover: their own school snacks, activity fees or casual outings with friends. Discussing mutual financial expectations avoids confusion and promotes responsibility.

Build Financial Skills

Use allowances as a scaffold to guide children as they practice real-world financial skills. Establish parameters but let natural consequences do the teaching at times. Letting a child overspend and then not have enough for something teaches budgeting skills for next time. Going to the bank together to open their first account builds money familiarity.

Foster Independence

An allowance system provides a protected environment for financial trial-and-error, so children build money skills before adult independence. This is particularly relevant if you are fostering in Wolverhampton or elsewhere, where the children may have faced instability and uncertainty around money. Giving children pocket money while they are in foster care is a good opportunity for them to learn to manage their money and promotes self-sufficiency that helps the transition to adulthood.

Even small amounts allow children to make their own spending decisions: £1-2 can cover treats, activities or savings. It may not be much objectively, but subjectively it’s their own money to budget and use. That sense of ownership, control and real-world application helps cement financial competence. 

Use Allowances to Teach Giving

Allowances present a great opportunity to introduce children to the idea of philanthropy and giving back. As part of their allowance, consider having your child allocate a small portion each week or month to a charity of their choosing. Let them research organisations and causes that resonate with them and make the donation decisions. This teaches social awareness, empathy, and the emotional rewards of generosity. It’s also a practical way to connect money management with a higher purpose. Even donating just 20% of a £5 weekly allowance can foster a mindset of using money to better the world.

Allowances form part of a comprehensive financial education for children. Creative allowance systems provide hands-on experience – the chance for children to learn money skills by actively using them. Tailoring allowances and financial expectations to suit evolving needs builds capable real-world money handling and sound financial judgement.

Published: 2024-02-12 23:33:07