How to Properly Give Your Kids an Allowance

There comes a time in every child’s life when they need their own money.

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There comes a point in every child’s life where it becomes impossible to take them to a store without them asking you to buy them something. It’s frustrating for parents, but it’s also a sign: It may be time to start giving them an allowance so they can know just how much their toys cost – and whether they’re really worth buying.

Use allowance money to teach them the value of balancing wants and needs.

Research from Investors Group has shown that Canadian parents are proactive when it comes to teaching their children about personal finance – with 82 percent frequently or sometimes having conversations with their kids about good money habits. But how should parents give an allowance? Tie it into chores? Should you teach them about budgeting, too?

Here are some allowance-related tips to get you started.

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    Teach kids about handling coins and currency

    At some point, your child will want to save, spend or invest. Show them how money adds up – how two nickels equal a dime and five nickels equal a quarter. Talk to them about the importance of saving for the things they want and for emergencies.
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    Help your kids with first purchases

    Use allowance money to teach them the value of balancing wants and needs. Have them set aside money for savings and when their savings goal has been reached, reward them with a trip to the store for a small purchase. Show them how to shop for the best price and let your child complete the transaction on their own.
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    Make the connection between kids and cash

    You probably aren’t the only source of cash for your kids – money is often a popular birthday or holiday gift – so use each present to reinforce the value of saving and spending wisely.
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    Introduce the concept of budgeting

    As your kids get older, have them allocate their spending in line with their need to save according to a basic budget.
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    Bank on it

    Show them how adults handle money by regularly taking them to the bank and, when it’s time, have them open their own account.
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    More money discussions

    Involve your kids in family financial discussions. Show them how your family budget must balance expenses and income. Introduce the importance of financial planning, savings and investment products such as mutual funds, stocks, bonds, GICs and registered and non-registered savings plans. Explain investment concepts like portfolio diversification and risk/reward decisions as well as the role insurance plays in maintaining financial stability and family protection.

Should you give your kids an allowance? That’s up to you – but starting early to teach them about dollars and cents is just plain smart. And the next time you go into a store you can tell them that if they want something, they have to buy it on their own.

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