Child Allowance – Teaching Kids About Money
Creating lucky kids starts early. Like most parents, I’m constantly trying to instill in my children the values that I cherish. I look out for learning opportunities that help them understand by example and go beyond daddy telling them what to do or how to do it. One of the key values that I want my kids to understand and appreciate is financial responsibility. If they think money will just appear in their piggy banks now and they can spend it on whatever they would like, it won’t set a good precedent for the future when they become independent adults.
Richard and Linda Eyre’s new book, The Entitlement Trap: How to rescue your child with a new family system of choosing, earning, and ownership, reveals many ideas on nurturing children to understand the financial consequences of their actions.
Their premise is that children who do not learn to appreciate how to manage money at a young age will not have a disadvantage as they grow into adults. The book’s goal is to empower parents to teach their kids the relationship between money, work, and purchasing priorities.
- Create specific tasks for them to earn money, each with a different dollar value. This can be things like doing the dishes, setting the dining table, taking out the garbage, doing homework without being prodded, washing hands before dinner, making their bed. The list goes on.
- Schedule a regular payday. Don’t just give kids an allowance at the end of the week. On payday, give the kids an amount of money that is directly proportionate to the number of their tasks they remembered, completed and tracked.
- Have a family bank with a slot at the top that kids can put a slip into that shows how many of their tasks they finished. You can even require that the slips be signed by a parent. On payday, open the bank with the kids so you can calculate what they earned.
- Stop the open wallet policy. Create a checkbook for each child so they can keep track of their deposits and withdrawals. Consider an option to pay interest on the money they set aside as savings.
When a child wants to buy something with the money they’ve earned, give them the flexibility to spend it on what they want. If that means blowing it all on a $150 pair of shoes, so be it. They will quickly realize they don’t have any money left for anything else, such as going to the movies with their friends. And this early learning will help them balance their financial priorities as they grow older.