Why should I give allowance?

At Otly we are building the first banking experience for children and parents can use this to manage the allowance of their children. If you are reading this blog you probably know this already. What might be new information is that 69% of Dutch children aged 5-11 receives an allowance1 but only 24% of children shows a basic level of financial knowledge. On the other hand, 88% of millenials think they are very knowledgeable.2

So, why are you actually giving an allowance? In today’s blogpost we will shine a light on some of the reasons why giving an allowance is good and how your children might benefit from it, sometimes even without them even knowing.

Cause, effect and setting goals

Before children start understanding money as a financial construct, they will first need to learn about setting goals and that certain actions have consequences. Even though children start to learn about the value of different coins and bills at a later stage, they will understand the relationship between giving money and receiving something in return.

These cute capuchin monkeys demonstrate this concept perfectly.

Simple calculus and mathematics

After understanding the use of money and understanding the way bills and coins work. Children will start to learn about subtraction, addition and multiplication from the moment they start getting an allowance. As a parent you can sit down with your kids to talk about their saving goals and start calculating how much time it will take to reach that goal.

Later they will start learning about percentages, the difference between simple and compounded interest, as well as the future value of money and other more advanced financial and mathematical concepts.

Learning to save

For most parents this will be one of the main reasons to start giving an allowance. To show their kids that money does not grow on trees and that an ATM is not a magical machine that gives money whenever you want it.

Learning to control yourself and you spending is an important trait to learn at a young age. In the famed 'marshmallow experiment', a marshmallow was put in front of them and were told that if they would not eat it for a certain amount of time, they would receive two. The children who were able to restrain themselves and didn't eat the marshmallow were more likely to succeed in their adult life. They were reported to have higher IQ, higher test results in high school and even had lower BMI's and were less likely to be addicted to drugs or alcohol 3 .

Understanding financial concepts

After having given your children an allowance for a while, and they are getting older, their allowance can be a great way to start exploring some more advanced financial concepts with your children. Once they understand percentages and interest, you can start the discussion about saving accounts or mortgages. And if they are really interested in finance and economy, maybe you can even introduce them to the stock market. You can let them play around with stocks in apps like BUX, where they can use 'fake money' to invest in the companies they know.

At Otly we firmly believe in the credo 'learning by doing'. This means that we do not build games into our app or patronize them in any way. We just want to create a banking app for kids, built in a way that relates to them.


Jelle

At Otly I work on everything marketing and communications related and some more stuff. Send Otly a message on Twitter or Facebook and you'll probably be talking to me. See you there.

Haarlem/Amsterdam

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