The Use of Money in Childhood – Allowance, yes or no?
An allowance can be a great way for our children to become conscious of the value of money and to encourage important qualities like saving, effort, and responsibility. After all, financial education begins at home.
What is the best way to establish an allowance?
Jean Piaget was a Swiss psychologist well known for his contributions to the study of children. Within his theory of cognitive development, he talks about the stages children go through on their way to adulthood.
The “sensorimotor stage”
Lasts from birth until a child is 2 years old. This stage is where a child gradually begins to interact and exchange information with the world around them.
This continues into the “pre-operational stage”
which occurs from ages 2 to 6-7. During this stage children develop the symbolic function and begin to wonder ”why?”. They are able to understand, represent, remember, etc. This is time to introduce the concept of money and currency. What it is for, how it is used, the value it has, knowing the limits of expenses, learning to control and not waste money, the importance of the effort and work to receive it.
From ages 6-7
Children move into the “concrete operational stage”. This is the stage were logical and mathematical notions begin, along with learning basic concepts such as addition and subtraction. Due to this learning, this is the recommended time to begin an allowance with our little ones. But to do this we need to keep a few things in mind:
- An allowance is money to by little things, like candy or trading cards, which they should pick freely, without us imposing or denying their purchase. This way, they will only be able to get them with their money and we should not be the ones buying it for them on a whim. By doing that, we will be taking value and importance away from the allowance. Basic needs such as food, hygiene, school supplies, and after-school activities should be provided by parents.
- It is a set habit. The amount should be fixed, as well as the day and time it will be given, without postponing or renegotiating. Since they still have not developed the concept of saving, giving it to them weekly is recommended.
- It has to be tangible. It is better to physically hand it to them so they understand that it is theirs for whatever trinkets they would like to buy.
- Adjust the amount with age. We recommend starting with $1 a week and slowly increasing the amount until you reach about $3-$4 by the end of the stage.
- Do not associate an allowance with completing household chores like setting the table, cleaning their room, or doing their homework.
- We need to be firm. If our child spends all their money in one day, we shouldn’t give them more. If you need to give them money in a timely manner, you should write out an agreement explaining the conditions and the amount of time they have to pay back the debt.
- Extra money. At certain moments they could receive extra money for completing activities that are outside of the norm, such as deep cleaning their room or working extremely hard on an exam or task. This will reinforce their motivation and enthusiasm, as well as emphasize the value of their effort.
After 12 years old
they enter the “formal operational stage” in which their adolescent brain has the ability to perform abstract cognitive functions like probabilistic reasoning, reversibility of thought, etc. It is in this stage that they begin to become more independent, so we will have to make small changes:
- Adjust the amount according to them. It is important to analyze what they habitually spend their money on and modify the allowance according to it (of course, within a reasonable margin).
- Monthly pay. By this age, they begin to develop the notion of saving money. Therefore, giving the allowance once a month can be used as training for adult life since they must be responsible for learning to manage their monthly expenses.
- When faced with punishment you can suspend the allowance temporarily, but never touch the money that they have saved.