Funny Money: Where does the term “cheque” or “check” come from?

The simplest way to start children off on the road to a balanced financial life is to give them some loot to manage. How much you give will depend on your personal circumstances and your attitude towards the whole concept of an allowance.

To learn how to manage money responsibly, children need an income they can rely on – one given at regular intervals. The experience of handling a steady flow of cash will teach many fundamental skills, including how to plan ahead, the skill of setting goals (both short- and long-term) and how to save.

The amount you choose to give your child will depend on how much you can afford, your child’s age, and what you expect your child to do with her allowance. If, for example, the most you can afford is five dollars a week, so be it. While many parents are stuck on the two-dollar-a-week allowance, just think about what two dollars can buy in this day and age (after you deduct for saving and sharing) and you’ll have a good idea of how effective that amount will be in teaching money management. 

Naturally, younger children need, and are capable of handling, less money. If all your child is buying is candy and the occasional toy, you may want to start her off with a relatively small sum. At five years old, 50 cents a week may be more than sufficient.

If you expect older children to buy some of their own clothes, pay for their own haircuts and plan for big-ticket buys such as camp, a television or car insurance, you’ll have to figure out what each of those things costs. To those Planned Spending items you’ll need to add some mad money (hey, they’re kids), some money for establishing a regular savings habit and perhaps also some money for sharing.

I have long recommended that people use the age of the child as a guide, giving a dollar a week for each year of age. So a five-year old gets five dollars; a seven-year old gets seven dollars. You’re the best judge of the amount that will be most appropriate for your child. Just remember that it needs to be enough so that your child can save, share and spend (mad money and planned spending included.)

As your child gets older, review and adjust the amount he receives. Pick a specific time of year – the beginning of the year, your child’s birthday week, the beginning of a new school year – and make the review routine. Ask your child to list the five most important things he wants to do with his money. If he is an avid reader and wishes to buy his own books, he’ll need more than a child who is only interested in candy. Listen carefully to what your youngster has to say.

If your son is looking for a hefty increase, ask him to give you a written proposal or a formal presentation explaining how much he wants and why. If you were asking for a raise at work, you’d have to justify your request. Perhaps he feels it is time he started buying his own clothes. You can negotiate the initial amount and attached responsibilities, and implement the plan slowly. Moving from no clothing allowance to a year’s clothing allowance in one fell swoop is a recipe for disaster. Let your child assume responsibility in small increments.

Before you do your allowance review, think about what you want to accomplish over the next year in teaching your child about money. Talk with your partner about how much responsibility you feel your child can now take on. Perhaps you wish to start your daughter on an investment program. If so, you’ll need to do a fair amount of teaching, and you’ll need to up her allowance to take the money for investing into account. You’ll also have to carefully monitor her progress to ensure the funds are being directed to the appropriate new category in her budget.

The Logistics

• Younger children find it easier to handle money if they are given a small amount every week. Consider what time of week is best. If your experience says that giving an allowance at the beginning of the weekend means it’s all gone by Monday, then give it on Monday or Wednesday. While you want your child to accept responsibility, young children need some help in developing the skills. The timing of the allowance may make all the difference.
• Children who are older and have established many of the habits of budgeting should be asked when and how often they prefer to receive their allowance. While some kids like getting a little money each week, others may prefer a lump sum once a month, allowing them to plan spending for the month.
• Whatever allowance schedule you establish with your children, make sure you stick to it. It’s demeaning for anyone to have to constantly ask for money. And providing the allowance on time will send a subtle message about the value of honoring commitments.
• Also think about the denominations in which you’ll give the allowance. If you give your ten year old all her money a single bill, she’ll have trouble implementing her budgeting plan without hitting a store to make change. On the other hand, if she gets smaller denominations she may find it easier to set aside the money for the various parts of her budget.

Next Week: Setting Expectations

Funny Money Answer: It derives from the game of chess. Putting the king in check means his choices are limited. A cheque or check is designed to limit opportunities for forgery and alteration.

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