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November 01, 2011 | kids-and-money

Why Allowances Aren't So Bad

Do your parents give you a weekly or monthly allowance? Whether or not it's tied to chores you must complete, this is great practice on managing your money when you get into the working world.

Once you start working for an employer, you'll receive your pay on a set schedule. Asking for extra money between paychecks is not likely to go over well! So learning to manage your money now helps create good habits that will help you for a lifetime.

Your parents likely receive their paychecks on a set schedule, and they have to make their money last until the next pay day comes along. This isn't always easy, especially when they're face with multiple needs and wants. And unexpected events can throw a wrench in even the most carefully-crafted budget. Here's an example. Your parents may want to take the family on a vacation. Maybe they've been putting aside a little money each time they get paid, building their savings account until its balance is sufficient to pay for that vacation. Then a storm comes up, and knocks a tree through the roof of your house. While insurance may pay for part of the repair, your parents might have to dip into the vacation fund to get the roof fixed. That means either delaying the vacation until the savings account has been built up again, or putting part of the vacation on a credit card – which ends up costing much more if the credit card balance is not paid in full each month. (That's because the credit card company charges a monthly fee, called "interest" on the amount put on a credit card. That's another article.)

So if you're receiving an allowance, start good habits now by putting a certain amount in a savings account each time you're paid. You might have a big purchase in mind that you're saving for, like a bicycle or an iPad®. Keep in mind that once you have those things, there are costs associated with keeping them running. Your bicycle may eventually need repairs, and you'll want to make sure you keep money in savings for that. An iPad requires internet access, and that incurs a monthly charge. Will your allowance cover that expense?