Teach Your Kids Money Management with an Allowance
Good money management skills are not something you are born with; rather, they are acquired over a lifetime of successes and failures. Giving your children a weekly allowance is a great way to give them experience with money and get them on the path to successful money management as an adult.
The Goal of Kids’ Allowances
Joline Godfrey, an internationally recognized expert in family education and the author of Raising Financially Fit Kids, has a mantra about allowances: “An allowance is not an entitlement or a salary. It is a tool for teaching children how to manage money.” She believes parents should use an allowance to help their children learn what they should do with their money:
- earn it
- count it
- save it
- share it
- grow it
- spend it
One suggestion is to establish a jar system for your child’s allowance. This system could include jars for saving, spending, and charity. All the money a child receives, including birthday money and other gifts, should be divided among these three jars (how the money is divided among each jar is up to your family).
An allowance also helps children budget. It can teach them how to save for their favorite toy or electronic device. You may even consider loaning your child some money for the purchase to teach them the discipline to pay the funds back. If your child doesn’t budget appropriately and runs out of money, don’t rescue him with more money. This is a great teaching opportunity to reiterate the importance of budgeting.
Choosing an Appropriate Allowance Amount
Now the question is, how much allowance should you give your child? The answer varies from family to family. One rule of thumb is to give your child $1 per week per year of age. This amount can be adjusted based on your family income, where you live, and what the allowance is supposed to cover (if you expect your child to pitch in for an expensive sport or hobby or to pay for her own clothes, you may need to increase the amount).
It is important that you wait to increase your child’s allowance until he has demonstrated that he is learning financial responsibility.