by Ismail Hussein

Created on: December 28, 2010   Last Updated: December 29, 2010

Today, people live in very uncertain economic times. In these times of financial crisis, it is perhaps more important now than ever to instill in children wise financial habits that will benefit them in the future. One of the ways in which parents can help their kids to learn good habits about money from a young age is by giving them an allowance. An allowance is a sum of money that is given to a child on a regular basis (daily, weekly, bi-weekly or monthly).  Before deciding to give your child an allowance though, there are several pros and cons you may want to consider.

Pros:

- An allowance helps children to learn financial responsibility:  By allowing your kids to make decisions about how they spend their money on their own, they will feel a sense of freedom. They will also learn about the consequences impulse buying and of making poor spending decisions.

- It helps children learn about saving: If there's something that your kid really wants, giving them an allowance to save over time so that they can purchase the product after a period of time may be more beneficial than simply buying the item for them. By accumulating their money over time, kids learn about the value of money and it would help them to appreciate the things they buy with it even more.

- Financial "independence" at an early age helps to boost self confidence: The word independence is in inverted commas because we know that a child cannot be truly financially independent until they get their own job. However, giving your child freedom to purchase whatever he/she wants with their allowance gives them a sense of freedom and importance that will easily translate into greater self confidence. By entrusting them with the resources to make their own decisions, you will be showing your child that you think they are old enough and responsible enough to make good decisions with their money. 

Apart from the benefits of giving your kid an allowance, there may also be some down sides.

Cons:

- Your kid may spend their allowance money on things that you don't want them to have: Many kids love to spend their money on junk food such as candy bars and other sweets. Though you may limit their access to these things in the household, they may be able to obtain them on their own with their allowance. 

- Kids may demand more money, complaining that their current allowance isn't enough: This is a common complaint amongst children, when they want more money to purchase the more expensive things they want. This happens because kids sometimes aren't patient enough to save their allowance for the things they want. This type of behavior could eventually put a strain on your wallet if allowed to get out of hand.

- Your child may simply horde his/her allowance and still depend on their parents for everything they want: In such a scenario, there is no learning about the value of money or how to be financially responsible, since the child simply accumulates their money and then get everything they need from their parent.

These are but a few things to consider before deciding to give your child an allowance. The only way you can truly find out if an allowance would benefit your kid is by giving them one, and seeing how it goes.

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