This was originally published on Monday, August 10, 2015, in the Pacific Daily News. Click here to subscribe to the PDN.
Q: I have two children, ages 8 and 12. I am conflicted if I should pay them to do their chores around the house or just give them an allowance. I have asked several friends but I am still quite conflicted.
A: There is no right or wrong answer; it is a personal choice. Each household handles this differently depending on how they were raised, availability of money and their perception of chores. Some parents believe that chores are a job and children should be justly compensated. Others believe that it is a responsibility that children are a part of the household unit and everybody needs to chip in and help.
If you really are on the fence, maybe finding the right balance between the two may help. Give them a base allowance as a teaching aide. For jobs that aren’t their normal chores, such as yard work, washing cars, or helping with a household project, perhaps you could pay them for that.
No matter what your choice is, keep in mind that the goal is to prepare your children for the real world. The real world that consists of a job, bills, taxes, investing, and the many different daily financial decisions that they will face. An allowance, however they earn it, is an excellent way to teach your children about the value of money.
Being entrepreneurial is also a great money teaching technique. It may even be more valuable than allowances and chores. Yard services, babysitting, car washing, pet grooming, newspaper routes and even a lemonade stand can teach children how money really works. Children will gain real-world experiences about loss and profits, prioritizing where money should go, budgeting, and even investing. It will teach them the value of hard work and that money is never freely given but earned.
Another real-world experience is having them pay for their wants. If they want that new video game, toy, or even an upgraded cellphone, teach them the value of money by saving up for it. I recently went through this with my 11-year-old son. He wanted something so I walked him through the thought process. He decided to get the item with his money he saved from chores, birthdays and Christmas. This is no different than what we adults have to do when purchasing a high-value item like a car, a luxury item or a family vacation. Give them opportunities to make money around the house. Another option is to clean out their closets and hold a yard sale. Whatever is not sold can be donated to a charity of their choice. Both options benefit the household and the child.
At this age, they are exposed to a lot of advertising, especially on television or in magazines. Enlighten your children that companies have to make money and they do so by appealing to your emotions. Show them the fine print in ads and commercials that some of these products do not work as seen in the media. Begin to immunize them to commercial propaganda and that their choices should be based on a number of factors, not just emotions.
Once your child starts receiving an allowance they will need a place to put their money. Many banks offer children’s accounts that are free or cost very little to open and maintain. Encourage your child to make frequent deposits, especially when they receive monetary gifts. As the balance grows you can explain how interest works.
Start getting them involved in family financial decisions. If you are saving to go on vacation, let them be part of the process. At this age, they really are interested in becoming part of the family unit and craving to be more responsible. They can clip coupons, comparison shop, assist with meal planning and shopping lists, and help balance the checkbook. Involving them in your daily financial practices is the best teaching tool to prepare them for the real financial world.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.