Make Money Management Child's Play
Most kids do not learn about money until they discover it through their own triumphs and disappointments as adults later in life.
One of the best ways kids will discover money management is through their own experience and the guidance you, as parents, may give them.
In other words, kids learn from trial and error and role models just like everybody. Most kids are never educated about money management until it is too late.
First hand knowledge is critical to learn smart money management skills and without the money, there is no knowledge. Kids do not get a regular income and so they do not have the opportunity to learn from their mistake or from their successes.
This is precisely why kids need a regular allowance.
Having an allowance is a great way for kids to learn about money management. This way they can:
• Make mistakes with minimal consequences.
• Learn to make choices.
• Appreciate and enjoy the things that they buy when they use their own money.
• Feel more independent and responsible.
An allowance is -
1. Never too early to start
Recent studies have shown that most 3-year olds are eager to learn about money so do not hesitate to start early and make your child a part of all household purchase decisions.
2. To be paid on time
Paying the allowance on time gives a structure to the whole learning process and also helps children imbibe the value of honoring one’s commitments.
3. A great way to instill accountability
It is a good idea to let your child account for how the money was used. This kind of activity can prepare a child to handle larger sums of money and even manage a checkbook later. As far as possible, you should avoid interfering with the purchasing decisions of the child. However, you may want to recommend a more productive of spending the money without hurting your child’s feelings.
How do you determine the frequency and the amount of the allowance your child should get?
It is simple. Just make a list of what they are supposed to pay for with their allowance. The total becomes their allowance. Once you have the amount, sit down with your child and make a list of everything they are supposed to pay for.
This will help them make choices and learn to forgo a purchase incase an unplanned one came about. Review the allowance frequency and amount periodically or when needs change.
If your child is motivated and would like to find out how to begin saving their allowance, this could be a great time to open their first checking account and expand their horizon on learning about money.
It is a good idea to keep a track of precisely where the allowance is going. A simple journal {check out My Money Journal by Karris Golden} with dates and amounts would show the child and the parent where and how they spent the money. A “Kids Account” with a passbook or a bankbook can keep a track of their savings.
Keep in mind, the motive behind giving your child an allowance is to teach them the value and the skill of money management, which will carry them through their adult years.
Having saved for something themselves, they would have learned patience and value for money that would go a long way in making them financially independent.
“What is important for kids to learn is that no matter how much money they have, earn, win, or inherit, they need to know how to spend it, how to save it, and how to give it to others in need. This is what handling money is about, and this is why we give kids an allowance.” ~ Barbara Coloroso
Do you give your child an allowance? How and why did you start?
Photo Credit: Casey Fleser
Hi Prerna,
Saw this article on Linked In. Agree with everything you wrote. It’s never too early to start. I started my youngest last year and he just turned 5. I have a blog article I wrote on this exact subject which is geared towards the younger ones. Check it out and become a follower at http://mommymasters.blogspot.com/2010/09/september-mommy-tip.html.
Thanks,
Ellie Hirsch
“The Mommy Master”
Found your article on Twitter. Kids definitely know what money does long before they even know what money is.
We started allowances when our oldest was 5. However, our 3-year-old thought learning about money was so much fun that she wanted to have an allowance too. Because I didn’t use much cash, I decided to pay them like direct-deposit into a written account we kept at home by setting up a system where we never paid them in cash. Our experience was so successful I wrote a book about it called “The No-Cash Allowance.” As the kids got older they kept track of all their transactions in their own accounts and were given control of increasing amounts of money to use for both fun and necessary spending. This laid the groundwork for them to learn to manage money as a number in an account, rather than a collection of cash in piggy bank. Managing money as a number put the responsibility on them to keep track of their balance. Over the years they learned to make responsible money decisions based on their own experience with their own day-to-day hands-on financial education.
Lynne Finch
For more about kids and money, read my blog at http://www.TheNoCashAllowance.com
Hi Lynne,
Thanks for sharing your money management tips.
The concept of a ‘No cash allowance’ seems wonderful and i’m not surprised that it’s worked so well with your kids.
Look forward to reading your blog
Mayank.
Hi Ellie,
Glad that you liked the post. Great to know that you started teaching money management skills to your kids at an early age! Look forward to connecting with you
Mayank!
Hi Mayank!
This is a wonderful post! I especially like your method for determining how much to pay. Some seem to think that the amount should be directly related to age (e.g. a dollar for each year of age). I find this a bit silly, as I can’t remember (outside of student and senior discounts) the last time someone asked my age to determine how much to charge me for something.
Me: “Excuse me… How much is this shirt?”
Clerk: “Well… how old are you?”
Me: “I’m 40.”
Clerk: “Then it’s $60.”
Anyway: Great writeup! By the way, I found it through Google Alerts. I track allowance-related content for a company called Allowance Manager which is a free tool for doing exactly what you describe above. I hope you’ll feel comfortable making your readers aware of it: http://AllowanceManager.com
Best,
Blair
Hi Blair,
Thank you for your lovely comment
I completely agree with you and determining the right amount of allowance is one of the key things in teaching kids money managemnt. I look forward to checking out the Allowance Manager.
Have a great week ahead!
Kids are so much more thoughtful and careful when spending their own money than they are when spending Mom’s money! Having their own money, either from allowance or extra jobs for neighbors or around the house, is a great way to get them started on a path of financial literacy. I agree with you that it is better for them to make mistakes when they are young and the consequences are minor than when they go to college with their first credit card!
We have found with our four kids that not only is keeping up with allowance important, but they also need to keep track of their cash and gift cards. Our teens might start the weekend with $20 but after spending a few dollars here and there, they would end the weekend with no cash and no real idea of where it all went. We developed a tracking system that encompasses allowances, IOUs, gift cards and cash. You can find this free system at http://www.moneytrail.net.
Hi Pam,
Thank you for sharing your experience with kids and allowances. Loved MoneyTrail and i think it’s a great idea to have a virtual, online system for keeping track of the money and credit for Teens and Parents.
Look forward to connecting with you:-)
What a great post. It is so important for parents not to wait until a child is getting ready to leave for college or move out of the house to have the money talk. Sound financial management is a learned skill that takes years to master – best to teach them while they are young when the stakes are lower!
Here is a fantastic book I recently read with my children that really helped bring all these points to their level in a fun story too:
Hi Rivka,
Thank you and apologies for the delayed response!
You’re spot on that parents should not wait until a child is getting ready to leave for college.
Thank you for sharing the book. I look forward to checking it out.
Mayank.
I have to chime in with a little different take on determining allowance by age. First off, I did it that way for years and it worked well. My reasoning was two-fold. First, I figured the older kids had more things on which to spend money than the younger ones (my kids started getting allowance by age 3). Secondly, I had four kids ranging from high school to preschool and a VERY limited budget (allowances at that point equaled about 5% of my take home pay). I got paid once each month so they each got $1/year of age once each month as that was what I could afford. It was fine for the little ones and encouraged the big ones to GET A JOB.
I also loaned the kids money if they thought they needed it (and could convince me AND I had it to spare) but always wrote down the amounts and they paid it back – just like in real life. In addition, once they developed legible handwriting, I had them take turns writing out the checks to pay the bills each month (yeah, it was a while ago!). I figured there was no better way to teach money management to the kids then by letting them participate in all aspects of household financial management. And all four are now financially responsible adults so I guess it worked:)
Crystal recently posted..DIY Hair Donation Update
Hi Crystal,
Thank you for sharing your experiences with allowances. Glad to know that determining allowances by age worked well for you!
Just goes to show there is no ‘one-approach-fits-all’ solution when it comes to teaching money management to kids.
It’s great to know that you involved your kids in your household’s money management activities.
I think it’s the best way to encourage accontability