An Educated Allowance: Teaching Your Kids How to Save Money

piggy bankParenthood comes with many educational responsibilities.  From letters and numbers to riding a bike to sharing with others, parents are busy teaching their children around the clock.  An equally important but often neglected set of skills that need to be taught are those of money management.  While most parents recognize this is important, lack of comfort with their own financial skills can prevent them from being proactive in this area.

Implementing an allowance is a great initial step to teach financial responsibility to children starting at a very young age. Although there is not a set “right” or “wrong” way to structure an allowance, there are a few general guidelines to follow in order to make the experience educationally worthwhile.

1.  Decide what lessons you want to convey.  Every family has its own unique set of values and views surrounding finance.  Before starting up an allowance, take some time to think about what messages you want to convey to your child.  Do you want to stress the value of hard work, disciplined savings, or charitable giving?  Decide what lessons you feel are most important to teach to your child, and then structure the allowance to make sure those points come across.

2.  Tailor the allowance to the age or developmental stage of your child.  There is not a magical age to start an allowance, but in general somewhere between the age of three and four is when a child can start to understand the basic concept that things cost money, and money is earned by working.  For young children who are very concrete thinkers,  the Money Savvy Pig piggy bank is a great teaching tool.  This piggy bank has four different slots that lead to four separate compartments that are labeled save, spend, donate, and invest.  The child then physically puts his money into each separate compartment so he can see how he is allocating some of his allowance to each area.  This bank is great for young children, but would obviously not be necessary for a teenager.  As a child ages they should be given more autonomy over how to spend their money, although always with some level of parental oversight.  Avoid micromanaging an older child’s spending decisions, often times kids (and adults) learn best by being allowed to make mistakes.

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3.  Dedicate some time to teaching.  Simply handing a child a few dollars each week is unlikely to drive home any worthwhile financial lessons.  Talk to your child when you distribute her allowance.  Tell her why she should set aside a percentage of her money to save, or the value of giving to those less fortunate.  In addition take advantage of “teachable moments” that happen throughout the week.  Take your child with you to the bank, or have her sit down with you as you pay the bills.  Countless opportunities pop up daily where you can sneak in a financial lesson or two; the key is to be open to speaking honestly with your child about money.  Remember, if your kids aren’t getting a financial education from you, they’re not likely to be getting it from anyone else either.

4.  Be willing to change and adapt.  The allowance strategy that works for your family today may not be ideal in two years time.  Constantly reevaluate the system you are using, with the main measure of success being how well your child is receiving the financial lessons you are trying to convey.  If it’s not working, try something else.  There are countless books on the subject you can check out from your local library, or bounce ideas off of other parents and see what strategies may have worked for them.

5.  Practice what you preach.  It is great to teach your children through an allowance and speak with them about financial matters, but they will learn far more from what you DO then from what you SAY.  Let them see you price compare and wait for a sale before you buy something.  Let them see you go to the grocery store with a list. Let them see you donate generously.  Let them see you say no to things you want but can’t afford.  Even in the toughest teenage years when your kids seem to ignore everything you say they are still observing what you do.  Actions speak louder than words, so make sure that you are living the lessons you hope to instill.

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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of her employer or any other person or entity.