All parents hope to pass on lifelong skills to their children, and one of the trickiest to teach is money management. All families handle allowances differently, and while there’s no one ‘right way’ to do it, it’s always helpful to have a few tips in your back pocket for how to make giving your kids an allowance into money management lessons that will serve them indefinitely.
1. Communicate openly about the amount given for allowance.
Kids are likely to feel more empowered with their allowances if they understand how you arrived at the amount - which is a great opportunity to talk about how to spend the allowance! Sit down with your kiddos and talk through possible things they’ll want or need to spend money on, and make sure to clearly distinguish between what is a want (that new hoodie) and what is a need (lunch.)
Come to a reasonable amount together, and make it clear that your child will be the one in charge of how it’s spent.
2. Help them put aside a fraction of the allowance into a savings fund.
Once the amount is decided upon, help your child start to make a habit of “paying themselves first.” Jeremy Delk of Delk Enterprises started investing as soon as college, and recommends helping your kids understand the value of investing by encouraging them to set aside some money early.
Work with them to choose a mutual fund or savings account, then teach them how to put aside even just $5 a month into the fund. They’ll start to see how the money works for them, which can help to cultivate a desire to save.
3. Try a weekly amount, then graduate to monthly.
A month, especially in ‘kid time,’ is quite a while. It may be challenging for kids (depending on their age) to learn how to allocate an amount of money over the course of a month if it’s their first time managing an allowance. So, if your family agrees upon $80 a month as an allowance amount, start slowly by giving them $20 at the beginning of each week. Then, they have the option to save the money if they’d like, or they know they only have $20 to spend for the week. Next, give $40 for two weeks. Giving your child the full amount upfront to soon can lead to excessive spending out of excitement!
4. Refrain from rescuing them if they spend it all too soon.
Finally, if your child blows all the money on an impromptu purchase, refrain from giving them ‘rescue money.’ This will help them learn the value of a dollar and to spend wisely. This step can be the hardest for parents, but it will help the child handle even their next month’s allowance differently.
Continue to see what works best for your family throughout the allowance management process, and make tweaks as needed. These skills will serve your children immeasurably!