The earlier you start teaching your kids responsible money management, the easier their transition from childhood to the “real world” will be. Instead of racking up thousands of dollars in credit card debt once released into the world, your children will grow to recognize the importance of long term investment portfolios, high yield interest accounts and how to spend money wisely.
An Allowance
Some families give an allowance that’s based on the amount of chores the child does around the home each week, some give the same amount every week regardless of whether chores are completed or not, and still others stick to the one-dollar-per-year-of-age rule. Regardless of your decision for how much money your children received, it’s most important to teach your children that their allowance should be divided up into different categories. This will help them establish these important money habits into their adult lives, as well.
You can create your own categories and percentages that suit your family belief systems and needs, but here is an example:
- 10% to charity or church
- 25% to savings that cannot be withdrawn until the child reaches the age of 18, goes to college, moves out, etc.
- 65% spending money, which children can decide how to use
The Choice to Spend
The percentage you allow your children to spend should be given to the child to spend on anything he or she wants. The key to making this successful is that it’s the only money the child gets to spend on things they want. So if the child decides he or she wants the latest video game but only has one week’s allowance, they have to save some of their spending money until they have enough to buy it.
This can be difficult for parents because you may want to give in and “loan” them the money – but if you do you’re teaching your children that credit cards and borrowing for wants is a great way to get what you want, right now. Let your children save up for what they want, and they’ll learn it’s better to save and buy with cash, than to buy with someone elses month and then pay it back. Your child may not appreciate this lesson now, and even become angry with you at times – but will certainly thank you for it in their adult years!
Extra Money
Children often receive money for holidays and birthdays, or from well meaning relatives who slip them a $5 bill on their way out of the house. Decide how you will handle this kind of money and stick with it so there is no discrepancies later. You may decide that birthday and holiday money should be divided up the same as the allowance, while allowing the miscellaneous money from a relative or otherwise to be used as the child sees fit.