Teach Your Children About MoneyJoin Us
Allowances are a great way for children to develop good money management skills. Knowing they’ll regularly get a set amount of money makes it easier for children to learn how to manage a budget and save for bigger purchases.
Allowances depend on several factor: age, maturity level, interests, responsibilities and the family’s financial situation. Review what an allowance will cover each year, based on the things your children will be expected to pay for, such as entertainment, school lunches or transportation.
Let your children make their own decisions and mistakes. Don’t give them more money if they run out due to poor planning. Instead, help them develop a budget for their allowance.
Money As Incentive
Don’t link allowances to behavior – it confuses the issue and can become a source of conflict and manipulation.
For instance, consider how linking allowances to routine chores can backfire. Children help around the house because they’re members of the family; they get an allowance to learn how to handle money. Linking the two may result in children who won’t do anything without pay, or children who decide that the “wage” isn’t worth the work.
Also avoid paying for good grades. Children need to learn that education is its own reward. To “pay for As” is also unfair to children who are unable to attain high marks even though they work hard.
Do consider paying children for extra jobs that you might hire someone to do. Explain the job and your expectations in detail, offer fair pay, and allow your child to say no.
Teach Smart Spending
Discuss and establish age-appropriate spending guidelines, and teach your children to comparison shop. This way, they will steer clear of forbidden purchases and learn to make good decisions based on price, features and quality. Encourage your children to use outside resources to research their desired purchases rather than giving directives. By developing their own level of shopping expertise, your children will be less likely to make impulse purchases.
As your children get older and begin to earn their own money, allow them to manage those earnings independently. Requiring them to pay for more of their expenses will prepare them for living on their own.
Teach your children to pay themselves first by helping them pick an amount to save regularly. Help them set short- and long-term goals, so they can see how their savings will pay. You may also want to consider making matching contributions to your childrens’ accounts to encourage savings.
Help your older children learn the concepts of compound interest, safety and liquidity, and encourage teenagers to build a fund for unexpected emergencies such as car repairs.
Encourage your children to share time and money. Help them plan gift-giving to family and friends, as well as donations to worthy causes. Keep a giveaway box in children’s rooms for outgrown clothes, toys and books in good condition, then take your children with you to make donations. This will help your children to appreciate their financial situation.