I am a firm believer that we should be teaching our kids how to be smart with money from an early age. I put together this little guide for how to use an allowance to teach kids good money habits so you can have good tips that are age appropriate for your child.
I did an earlier post helping you decide if you should pay kids for chores or if you are just going to give them a weekly allowance so they can get used to making financial decisions. You choose what works best for you and your family.
I personally think it is best to make kids work for their money. This teaches them at an early age that if you want something, you have to work for it. Just like adults have to go to work to pay bills, kids should work to earn money for that special toy or video game they have been wanting.
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Use an Allowance to Teach Kids Good Money Habits
Sit down as a family and have a discussion about what will be expected of your child to earn their weekly allowance and how much they will get. A good age to start an allowance is around 5-8 years old. A good amount per week would be $1 per age. So a 5 year old would get $5 a week, a 6 year old would get $6 a week, and so on.
Make a list of everything that needs to be done to earn the minimum every week. This could be keeping their room clean, making the bed every morning, doing the dishes, folding laundry, etc. You can even come up with ways that they can earn extra money. This may be seasonal things: washing the car, raking leaves, shoveling snow, etc.
Sit down and come up with ideas that are age appropriate for your child. You can even use a chore chart for younger kids to help them visualize what they need to do.
Use a Save, Spend, Donate Piggy Bank
I think it is a great idea to use one of those clear piggy banks that are divided into save, spend, and donate sections. You can sit down with your child and discuss how much of their money will go into each compartment every week.
This gets them into the habit of saving for the future and not just for one particular item. It is a good idea to give younger kids cash so they can count out how much money they have and how much more they will need to be able to afford the item they want. It will help grow their math skills!
If your child is a preteen or teen, you may want to get a debit card or an app that you can automatically upload their allowance to. You can even set them up with a savings and checking account at a local bank or credit union.
Creating Teachable Moments About Finances
Encourage Sharing and Empathy
By having your child save a percentage of their allowance to donate, they will learn the importance of giving back to those in need. Have your child pick a cause or charity that is important to them. This could be the animal shelter, food bank, or even a family you know of that may need some help.
At the end of the year, have them take all of the money they have saved for the donation and let them donate it themselves. It will give them such pride and reinforce how good it feels to help others.
Let Them Spend
It is important to not only have your child save money but spend it as well. This can help teach them about buyer’s remorse while the stakes are still low.
It will teach them that they should only buy something if they really want it, not as a random purchase. Otherwise, they will have to continue to work and save up for the things they really want.
This also helps put a stop to the begging every time you pass the toy aisle. Once kids know that they can only buy something with their allowance (Mom and Dad aren’t doing it anymore) they will see that it is up to them to make good decisions with the money they have.
Have them set goals for what they want to save for. This doesn’t have to be just toys and games. It could be for an experience like a movie or concert ticket.
Don’t get me wrong. We will still buy our daughter toys and games for her birthday and Christmas but if she wants something special throughout the rest of the year, she knows she will have to work for it.
My little girl is only 6 and I have noticed that once we started letting her work for an allowance, she has stopped begging for everything that she sees. She now understands the value of a dollar and it is helping her work ethic, too.
She actually rethought buying a certain toy the other day because it wasn’t what she truly wanted. She said she would wait until we found the other kind of doll that she really wanted.
I hope that by being able to use an allowance to teach kids good money habits, it will set them up for a good financial future as an adult.