Starting school opens the door for your child for more money management experience. The 6-12-year-olds have more activities and an expanding social life. Your kids spend more time away from the family and start using money when you’re not around.

As your child receives money from various sources and in different forms, the home account continues to track the funds as well as tracking virtual money. Opening an account in a financial institute are future steps in money management before adulthood.

52% of parents have used back-to-school shopping as an opportunity to teach their kids about money. T. Rowe Price Parents, Kids and Money Survey

Kids in this age group make more money decisions as well as choices they may regret; buying a toy that breaks, going to a movie they didn’t like, buying a shirt that shrinks in the laundry.

You will make some mistakes, but if you learn from those mistakes, those mistakes will become wisdom and wisdom is essential to becoming wealthy. ~ Robert Kiyosaki

When my daughter regretted a spending decision, she asked, “Why did you let me buy that?” Whenever she asked, our answer was consistent: “Your money, your decision.” When a kid makes a money mistake, the mistake is a gentle learning lesson. A 10-year-old making a $10 mistakes is educational, while a maxed out credit card as a young adult could be lingering nightmare.

Remember, kids see parents make their own money choices that don’t work out. We all make some decisions and buy stuff we don’t need, or doesn’t last, or was a poor impulse choice. Sharing these experiences without judgement makes for great family money conversations. 

Transferring money with responsibility

One of my goals in giving my kids an allowance was to teach them that not all money is discretionary. I had no concept of paying bills growing up, so I created age-appropriate expenses for my kids. Because they weren’t earning their money, I transferred money to their account for those expenses for them to learn more about money management.

You might think of this as the CEO of a company transferring control of funds to each department  (your kids) to manage. This is money you would spend on them anyway; you are simply transferring the funds into their account.

Based on the most recent data from the Consumer Expenditures Survey, in 2015, a family will spend approximately $12,980 annually per child in a middle-income ($59,200-$107,400), two-child, married-couple family.

If you only transferred 10% of that amount, the median annual allowance amount would be about $1,300, with older kids getting more, younger kids getting less.  Giving your kids control and responsibility of this money serves them well as they learn to manage money for both fun and necessary spending.

To set up spending plans, start by classifying expenses. Child-paid expenses are those that your child is totally responsible for managing. For example, in a school spending plan, a child-paid expense is a backpack.  

Shared expenses help a child develop more appreciation for an activity or expense. For example, you may set the basic cost for jeans at $30 with the child paying the extra. Generally, everything else is a parent-paid expense.

Spending plans can be introduced when your child first begins school and expanded each year. Buying school supplies is a great way for your kids to pay for things they need for their day job. 

Our requirement was that they purchase everything they were expected to have for that school year. They could buy fancy folders and inexpensive pencils or vice versa. The choice was theirs.

If you’re not sure how much to transfer, pick a number and be open to negotiations. If we discovered our original amount wasn’t enough for school supplies, we renegotiated and had better numbers for the future.

However, if they didn’t spend the entire amount, they could keep the balance. As a result, our kids would pour over the back-to-school flyers for the best deals. But if they needed more money because they lost their pencils that would have to come out of their general funds.

More money, more money management

Select categories appropriate for your child’s age. The list could include: school, gifts and donations, room, entertainment, activities and hobbies, communication, clothing, personal care, and transportation.

The span between ages six and twelve is huge in terms of money understanding. The younger kids may be on more excited about having money to control, while the older kids may have more questions that create money conversations in the home. These years will be fascinating as you watch your kids grow in confidence and responsibility.

Allowance anecdotes

Inventing interest: Our daughters figured out how to transfer money between the account by adding and subtracting the appropriate numbers. Then, to our surprise, they started changing interest. When asked, they explained that it was only fair for the lender to get some extra money on the payback. These little tycoons believed that they had invented interest.  

Where’s your money: My 7-year-old grandson asked me, “You don’t work so where do you get your money?” I explained that I saved part of my earnings to use later in retirement, adding that when he had a job he could do the same thing. What a great opportunity to for a money conversation about saving for retirement.

Got a great deal for you: My daughters had a spending fund for clothes and did their own laundry. When a few items shrunk, my oldest daughter told her sister, “I can sell these to you at a great price.” No deal.

When your kids track all their money as a number, they become better money managers.

Read more: To pay or not to pay for chores

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