The best tool for teaching your kids about money is an allowance.
If you want your children to grow up with good financial sense, you need to start early with a regular, consistent allowance. Giving your kids a source of income and the responsibility of managing it will teach them lessons to last a lifetime.
If you decide to give your kids an allowance, keep some of the following tips in mind:
- Tie the allowance to your child’s household obligations. Make sure your kids clean their own rooms, help out with the dishes, etc. This will help them make the connection between income and work.
- Don’t withhold the allowance as punishment. The only reason to withhold your child’s allowance is if they fail to complete their chores. If they misbehave at home or school and you dock their allowance for it, you’ve just set up a very bad set of incentives; they now know the price of acting up, and may be inclined to happily pay it. Don’t teach them the lesson that they can buy their way out of trouble. Incidentally, some parents worry that this same lesson applies to chores. Say your daughter absolutely hates doing dishes, and decides it’s worth it to forego her allowance in exchange for not having to do that chore. That’s a trade-off she should be free to make. But if you continue to give her money for toys, shopping, or socializing with her friends, then the fault is yours. Be consistent, and stand behind your established arrangement. Your daughter will accept the job of helping with the dishes if it’s the only way she’ll be able to earn any spending money.
- Let them make their age. This is a general guideline for parents who aren’t sure how much to give their kids. Our suggestion is a weekly allowance that matches the child’s age. Your six year old would be given six dollars per week, your ten-year old would be given ten, and so on. If that seems like too much money to you, consider the cost of toys and activities your child participates in. You won’t be buying your 9 year old a $10 toy car or your 12 year old a $20 action figure; they’ll be buying them on their own, with their allowance money. And when their money is spent, they won’t be able to buy any more items (and you should stand firm in making them pay for the things they want on their own).
- Do not give advances. If the allowance has been spent, then they will have to wait until the next allowance for more money. This will teach them to spend more carefully in the future. Not to mention, they won’t be getting payroll advances in their adult life, so you’ll be preparing them well for the harsh realities of adult personal finance.
- Teach them to save. Help your kids set up bank accounts and make sure they save a portion of their allowance for the future. Saving is an important habit that should be encouraged as early as possible. Whether it’s toward a down-payment on your child’s first car, or a college savings fund, it’s crucial that some significant portion of the weekly allowance be set aside for the future.
Also, if you want to teach your child to tithe, you should start with a portion of their allowance. Whether it’s a church, charity, or cause that is important to your kids, teach them to give at an appropriate level and make room in their budget for charitable contributions.
At credit.org, we offer frequent educational seminars that are free to the public. Among these is the “Raising a Money-Smart Child” seminar, which expands on some of these ideas in greater depth. A free .pdf version of the “Raising a Money-Smart Child” seminar booklet is available for download at from our FIT Academy.