How an Allowance Helps Children Learn About Money

At first, young children may spend all of their allowance soon after they receive it .If they do this, they will learn the hard way that spending must be done within a budget. Parents are usually advised not to offer more money until the next allowance.

The object is show young people that a budget demands choices between spending and saving. Other children may be responsible enough to save money for larger costs, like clothing or electronics.

Many people who have written on the suject of allowances say it is not a good idea to pay your child for work around the home. These jobs are a normal part of family life.

Paying children to do extra work around the house, however, can be useful. It can even provide an understanding of how a business works.

Allowances give children a chance to experience the things they can do with money. They can share it in the form of gifts or giving to a good cause. They can spend it by buying things they want. Or they can save and maybe even invest it .

Saving helps children understand that costly goals require sacrifice: you have to cut costs and plan for the future.

Requiring children to save part of their allowance can also open the door to future saving and investing. Many banks offer services to help children and teenagers learn about personal finance.

A saving account is an excellent way to learn about the power of compound interest.

Compounding works by paying interest on interest. So, for example, one dollar ivested at two percents interest for two years will earn two cents in the first year. The second year, the money will earn two percent of one dollar and two cents, and so on.

That may not seem like a lot. But over time it adds up.

And that's the Voa special English economics report, written by mario ritter. We invite you to share your family sotires about getting or giving an allowance. Write your comments at voaspecialenglihs.com--where you can also read , learn with our programs and english teaching activities.