How allowance Helps Children Learn About Money written summary 78
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|Many people who have written on the subject 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 of giving to a good cause. They can spend it by buying they want. Or they can save and may be 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 offers services to help children and teenagers learn about personal finance.
A savings account is an excellent way to learn about the power of compound interest. Interest rates on savings can be very low these days. But compounding works by paying interest on interest. So, for example, one dollar invested at two percent interest 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.
Paying children for extra domestic is recommended as it provides children an opportunity to identify with business world and learn about the power of compound interest from saving accounts, which can cultivate children’s habits of saving and investing.