Little ones quickly learn that money makes the world go ‘round, or at least can provide them with that great new toy. They quickly learn which toys are desirable and which ones are expensive. Often, the two overlap. As parents we all try to raise responsible and unselfish children helping them to understand the value of money. One way to help children learn responsible money management is to provide them with access to money of their own and teach them about saving, spending, and charitable giving.
Experts advise beginning allowances at five to seven years of age, depending upon your child’s maturity. Some people choose to tie allowances to behavior or chores, while others simply deem an allowance as part of sharing in the family finances. Most experts believe the latter, but do allow for payment for special chores, such as cleaning the garage or bathing the family dog. How much is an appropriate allowance? Sources often suggest fifty cents to one dollar per week per year of age, depending upon the child and family finances.
How can you then help your child manage their money and begin healthy financial habits that will last a lifetime? One strategy often suggested is to split the allowance into three jars or envelopes with your young child. The first holds spending money. The second holds money in short term savings, with a goal at the end. The third is long-term savings. The contents of the third jar can earn interest as appropriate. You may wish to encourage a fourth jar for charitable giving or tithing if that is appropriate for your family.
At eight to ten years old, consider moving the contents of the third jar into a joint savings account, and be sure to include your child in family money discussions as appropriate. They can understand budgeting, family values, and how money is spent within the family. Also, when planning back to school shopping, help them to budget available funds. As your children become teens, provide them with further education about credit, and consider a prepaid credit card to allow them to learn to budget while still under mom and dad’s roof. Credit is often a problem for young people, and allowing a safe understanding of income, spending and debt while at home can be a helpful transition. As your child begins working as a teen, encourage saving for college, their first car, paying some of their own living expenses, and even consider suggesting that they open a Roth IRA and begin saving for retirement.