If you want your kids to learn to manage money before they leave home, you will need is an effective allowance strategy that creates good money habits early.

Parents, if you don’t teach personal finance lessons to your kids, they likely will never receive any financial education. It’s your responsibility to ensure they are ready to leave your home with the skills, behaviors and system that will help them be self-sufficient members of society and avoid the pain associated with money struggles.”
Vince Shorb CEO, National Financial Educators Council

Allowances encourage spending not responsibility

When it was time to give my kids an allowance I wanted them to learn that money isn’t all for fun. I grew up spending my money for fun. It wasn’t until after college that the reality hit me. When my husband and I combined our salaries we thought we had it made. After adding up the bills I panicked when I looked at the small balance left. Where was that fun money I loved so much? 

That’s when I knew the link between money and responsibility is at the center of adult money management. I also realized that just as kids grow up quickly, so does the reality of managing money as an adult. As a mom I made it my responsibility to make sure that my kids grew up with an introduction to money reality. My allowance needed to prepare them to be self-sufficient members of society.

I wanted them to be independent, own their money, and make their own money decisions. Because of that I needed to create a system that put them in control so they could learn from their choices. 

With that in mind I started an allowance analysis. Obviously my allowance experience as a kid missed the mark. What lessons and insights had I missed? I needed an effective allowance strategy to create good money habits early. What was the difference between kid and adult money management?

Adult money comes with real consequences

Consider these adult realities where adults own their money with complete control and responsibility for how they manage it. Adults:

• Must make their own decisions 
• Rarely receive bailouts for poor decisions
• Expected to pay bills because they agreed to
• Pay time or suffer consequences, late fees, overdrafts
• Review financial records and analyze activity
• Manage expenses for both necessary and discretionary spending
• Legally responsible for expenses

Kids money comes with kid gloves

Parents may not see the potential money pitfalls awaiting their kids as adults. Consequently parents may not have a plan to help their kids learn the necessary skills. Kids with most allowance systems:

• Do not make all their own decisions; parents often set controls
• Spend mostly for discretionary uses
• Have little or no experience paying expenses on time
• Get bailouts from parents for mistakes, often continuing into adulthood
• Do not track their money as a number or review spending
• Have little or no financial consequences for their decisions

Responsibility is essential in kids allowances

There are many ways to set up allowances for kids today. For many parents it’s just easier avoid thinking about the expected result. When it was time for allowances, I wanted my kids to learn more from an allowance than I did. I was determined that they would get an introduction to the adult money world. They would own their money, make their own decisions, and learn that money wasn’t all for fun. Real life stuff. What this mom discovered about allowances may help your kids

An effective allowance strategy creates good money habits

You can create an allowance system that transfers funds to your kids’ control, gives them expenses, and responsibility for their decisions. You can also create a system that teaches them to manage money as a number as you do. Give them the experience now so they can better manage their money before they become adults. They may not learn it anywhere else.