Most things in personal or business finance are not as simple as they first appear. Deciding how much money your child can access is no exception. It’s a complex issue because no two children or family situations are alike, meaning that what’s right for one child isn’t right for another. Still, you can come to a better decision about how much money access to give your child by looking at the issue from different perspectives.
Your child’s friends do X, Y and Z.
Finance is one area in which it is not always necessary to “keep up with the Joneses.” Your child doesn’t always have to have the latest mobile phone, for example, simply because his friends all do. Even so, your child inevitably will encounter legitimate expenses that are associated with…well, association. For instance, he might have to pay a small fee to participate in a team sport through your community center, or his school might ask that he bring a few bucks to cover the cost of a field trip lunch. Looking at the total funds necessary for these types of activities might be a good starting point for figuring out how much your child should have in his wallet.
Your kid mentally walks circles around others his age and has energy to spare.
Kids are not clones of each other, although scientists recognize that development tends to happen in fairly predictable stages. For this reason, you can’t assume that your child will be ready to handle the same level of cognitive processing as Joe Schmoe’s kid next door. It typically makes sense to give your child a little more money if he is ahead of the crowd in problem solving, because he’ll be able to better understand the complexity and consequences of financial tasks that might require more funds.
Your child is as responsible as they come.
Children operate largely on emotions, because they are still developing their ability to rationalize based on knowledge and experience. Responsibility thus comes with maturity and the ability to leave some emotional response behind in favor of logic. Take a look at how your child has handled non-financial items or tasks for an initial determination of the money he should be able to have. If he can handle this initial amount well, it might be time trust him with a little more dough. Keep in mind that occasional financial mistakes are part of learning—they don’t necessarily mean your child is irresponsible overall.
You’re looking closely at your budget.
When financial times are good, parents and caregivers literally can afford to be more flexible when it comes to giving children access to funds. When money is tight, however, you might not be able to let your child have the amount of funds you know he could handle. If your situation changes, the amount of money your child can access might need to change, too.
Current financial goals are set.
Good financial education for kids involves many different topics—for example, saving, investing, banking and retirement. As you cover different areas of finance, you might have to come up with various financial goals in order for your child to go through the monetary process on his plate. Some of these goals will be very simple and won’t need a lot of funds. For example, you can teach budget allocation with as little as a dollar. Some goals are more complex and thus require that your child have more money at his disposal. For instance, some bank accounts have a minimum initial deposit amount, and some bonds might not be available in smaller denominations. You might need to look at what you want your child to learn about money before you make a final call on the money he should have.