Should I Give Cash Allowance To A Three Year Old?

MANILA, Philippines - Question: Should I give money to my three-year-old nephew who already goes to school? I fear that he will just buy junk food so I just make him bring snacks instead of giving him allowance. – Carlo via email

What’s a good age to start giving allowance to my children? – a question always asked during talks

Answer: Giving children allowance is a good training ground for handling money. However, I think three years old is too early. At this age, your nephew is just starting to learn how to read and write. I doubt very much if he already knows how to compute his change. And of course, you are right that he may just end up buying junk food.

I started giving allowance to my sons when they entered Grade 1 (6.5 – 7 years old). At that time, they already knew how to count their change and some of their lessons in Math even involved exercises on purchasing something from the store and mentally calculating their change.

However, they continue to bring baon to school. Bringing baon is a tradition in our family that has not only saved us money but has also given us control over the type of food that our children eat on a daily basis. This also allows us to give just a small amount of cash and not worry about our children getting hungry.

When the maximum amount of money that a student could bring was P100.00, as prescribed by their school back in the late ‘90s, P100.00 was already their weekly allowance. So they just brought P20.00 each day.

Too much cash allowance has a negative effect. You may end up with a child who will forever want to be a student. But I’m getting ahead of the story, your nephew is only three. But do keep this in mind: A fresh graduate who’s so used to a big allowance in school will find it hard to find a job with a starting pay that can match mom and dad’s “generous pay.”

There is also a school of thought that children should not be given cash allowance but should be required to work for it by doing chores. There are pros and cons to this. It really depends on your own money values. The most important pro is it teaches them the relationship of work and money. However, just be careful especially with very young children because they might grow up thinking that you only do things for money. There are things that you should do because you’re a member of a household. And bear in mind, never pay your child for doing things that involve his personal hygiene!

OK, assuming that your money values agree with giving allowance to your child, it’s good to start with a small amount and if you think he can handle it, I suggest you give it on a weekly basis. Why? Because this gives him a chance to exercise control over money, the discipline of staying within one’s budget. Don’t be too quick to the rescue giving him additional allowance if he runs out of cash. If you do, you just wasted a valuable life lesson for him.

I have a friend who said that her son is not magastos so she only gives him cash on an as-needed basis, “If he has not used up the amount I gave last week, I won’t give him yet.” However, I think doing this is a disincentive to save. And another, training a child can get from receiving allowance is the discipline of saving.

I recall my sons’ early grade school years when they were so excited to save, there were weeks that they would save their entire allowance! Wow! 100% savings rate. However, as they grew older, they had more gimmicks, they had to pay for their own cellphone load, etc. Their savings rate was going down and at times zero. That’s when we suggested a minimum savings rate of 20%.

Our oldest son is now working and my husband and I are so pleased with the way he handles his money, a lot of it he learned from managing his allowance. He continues to bring baon to work most days of the week (something my husband and I used to do during our first job) and he now saves more than 20% of his paycheck!

So based on our personal experience, I can say that giving weekly allowance to our kids (at the right time, with the right amount and guidance) can help form their money management skills, a very important life lesson and a good economic self defense as they start their own life.

Wishing you financial happiness,

Rose

(Rose Fres Fausto is the author of the book Raising Pinoy Boys. She was an investment banker before she became a full-time mother to Martin, Enrique and Anton. Send your questions to maryrose_fausto@yahoo.com or log on to www.RaisingPinoyBoys.com. You may also send text to 0927-5159011.)

This article is also published in www.RaisingPinoyBoys.com.