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I’m Steve Ember with the VOA Special English Economics Report.
Many children first learn the value of money by receiving an allowance.
Parents often give their children an amount of money that they may spend
as they wish. The purpose is to let the children learn from experience at
an age when financial mistakes are not very costly.
A child may receive an allowance each week or each month. The amount is
not so important. But parents should make clear what, if anything, the
child is expected to pay for with the 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 should not offer more money
until the next allowance is to be paid.
Older children may be responsible enough to budget larger costs like
those for clothing. The object is to show young people that a budget
demands choices between spending and saving.
Many people who have written on the subject 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 three things they
can do with money. They can share it in the form of gifts or giving to
organizations. They can spend it by buying things they want. Or they can
save 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 free savings
accounts for young people with small amounts of money.
A bank account is an excellent way to show children the power of compound interest .
Compounding works by paying interest on interest. For example, one
dollar invested at two percent 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.
That may not seem like a lot. But an investment that earns eight
percent compounded yearly will increase one hundred percent in value in
about nine years.
This VOA Special English Economics Report was written by Mario Ritter.
Our reports are online at voaspecialenglish.com. I'm Steve
Ember. | 
