Allowances - trial and error money management
The main reason for allowances is to help kids learn – by trial and error – how to manage money. Because allowances give kids a steady income, receiving regular payments helps kids plan for the future: they can set goals, work to reach them, learn how to save and spend. They also learn to be responsible and to profit from their mistakes.
Responsibility of ownership
Allowances give kids money to keep track of – in other words, not lose or misplace it. If money "disappears," it's gone. Kids will eventually learn to be more careful with money.
Responsibility of making their own spending decisions
When kids must spend their own money on items you consider foolish or extravagant, you are no longer put in the position of approving or denying the purchase. It's their money. They may or may not learn that the item was not as great as it promised, or that is was flimsy, or that its excitement only lasted a day. If they learn any of those lessons, the item becomes well worth whatever amount of money your child paid for it.
Kids are bound to make mistakes in the way they handle their allowance, but that is all part of the learning experience. Making mistakes early in life on small things should prevent more serious mistakes later on, when errors can have more long-lasting consequences.
While most experts agree that allowances are good money-management tools, opinions differ about structuring allowances. Families must decide for themselves how to iron out the details. Read more on how to structure allowances.