Learning to manage money is a fundamental skill for navigating the world. It is as basic as learning to read and learning to cook, and yet, it comes with a lot of baggage. An allowance is one way to learn.
Yes, I wrote about high finance in Hedge Funds For Dummies
Two good strategies to start with are an allowance and giving the kids a tiny peek at the family finances.
First, the allowance: Start with a small amount of money with no or very few strings attached. For younger children, it may be $1 a week, then a dollar per year of age once they start to have things on which to spend money. And yes, make your kid pay his or her own money for such things as school supplies after the start of the year, school book fairs or neighborhood lemonade stands.
For older children, the allowance can cover more regular expenses: transportation to school, lunch and some or all of their wardrobes and school supplies. Yes, the kid might blow all the money one week and be stuck without bus fare. In that case, you should negotiate a loan (with interest) or give the child a job.
My high school senior gets $70 per week. From that, he pays almost $6 per day in train fair and another $5 per day for school lunches. With the remaining $15 or so, he pays for school supplies, weekend social events, and some of his sports gear. He’s on the swim team, and I buy one suit and one pair of goggles per season. If they get lost, he has to replace them. He figured out early on that he can have more money for the weekend if he takes his lunch to school.
Some people are opposed to allowances because the kids receive money that they do not work to earn. However, people often receive money to manage that they did not earn, at least in a traditional way. Think about a stay-at-home parent in a two-parent family, an employee with an expense account, or a committee chair on a volunteer project.
Along with the allowance, kids need information about finances. You don’t just give a kid a bike; you give the kid a bike and lessons on how to ride it safely. An allowance needs to come with lessons, too. Kids need to see how you manage money. That’s how they learn to manage their allowance – otherwise, it becomes free money in the worst sense.
You don’t need to share your income, assets, and debts with your children. Rather, do simple things. Take the kids to the grocery store to show how much less store brands cost. Explain the choices that you make as parents and giving the children input as appropriate (e.g., “We aren’t going to go on vacation this year because we need a new car, but maybe we can come up with something fun to do together as a family that won’t cost much. What are your ideas?”). Help your kids calculate how much money you might save by turning off the lights when they leave a room or by making lunch at home vs. going to a restaurant.
Some parents dislike this part because they don’t manage money as well as they might like. If this is your situation, focus on something that you do well to start. Or, turn money management into something that the entire family can learn. For example, see how much money you all will save in a week if you put your change in a jar, then put the money toward something fun. Have everyone go through Living on the Cheap to find one tip that can apply in your household. See if you can work together to plan an all-cash Christmas.
Teaching kids about money may mean teaching the whole family about money, and that’s okay. The more people know, the more responsible they will be, at every wealth and income level.
