With money in their written account, what responsibility do kids have in learning to manage their money? 

While living at home, if kids only spend as they desire, they don’t experience the responsibility of paying for some of their expenses. 

The “it’s all about me” habit doesn’t work when kids transform overnight to adults legally responsible for every spending decision.

Those at-home years between getting their first allowance and high school graduation are the best time for experiential money management .

A recent BYU study finds hands-on experience is best for children to learn financial responsibility

Kids need responsibility

Kids who manage their money in a written account learn the “pain of paying” for age-appropriate expenses. Today’s kids believe a cell phone is an absolute essential, making it the perfect expense for kids to manage.

Long ago when my kids were young they wanted a TV upstairs with cable. We suggested that they contribute a few dollars each month. They agreed because they really wanted to watch their own TV shows. Even though we all knew they weren’t paying the entire cost, they had a responsibility to pay their share on time. 

Most kids receive money, usually an allowance, with few expense responsibilities. This free-form spending creates a spending habit that can escalate in the teen years. 

Manage money for fun and expenses

As parents, you can give them experience learning how to manage money for fun and necessary expenses. This can be an essential part of your child’s financial education at home. 

Kids who pay some expenses gain some mindfulness about money while learning to make wise money decisions. Before spending they may look at their account and see some expenses ahead. 

Maybe the cell phone contribution is next week. They might realize they’ll have a negative balance if they overspend this week. A negative balance in your allowance system can have consequences—a late fee, or the most drastic thing ever—taking away the cell phone. 

On allowance day, kids update their balance and mentally plan for the next week. As parents you can provide spending funds allocated for specific purposes. 

It’s as if they are a department in your family corporation and you are funding their department’s needs. This is money would spend on them anyway; you’re simply transferring the responsibility to them.

One expense responsibility I recommend for all kids is paying for their school supplies using a pre-negotiated fund from parents. School happens every year. They are responsible for buying all of the supplies required. If they use their funds wisely they can keep the difference. 

Responsibility for some expenses gives kids some skin in the game, some ownership. 

Another way to introduce the idea of expenses is to have them contribute a small part to some of their activities, maybe a dollar per piano lesson or a portion of the sports fee. 

Their small contribution takes a tiny bite of their balance and helps them realize that lessons and activities aren’t free.

Start early so expenses become part of their mindfulness about money. A preschooler’s first responsibility is to understand that when they buy something the number has to be less than the purchase price. The numbers don’t lie.

This small lesson teaches them that they can’t spend more than they have. With this approach kids have real control over real money. You won’t need any allowance apps because the kids are in control with you as a facilitator or banker.

Kids need responsibility

As your kids get older they will manage more money and more expenses. By the time they are in high school they can be handling most of their day-to-day expenses including: school expenses, extra-curricular activities, some clothing, personal care supplies, cell phones, transportation, eating out, and entertainment. Kids need spending responsibility to get ready for adulthood. 

Anecdote: When our daughters got to high school age at the beginning of each semester we transferred their fund of money to cover many of their day to expenses. Sarah asked, “You mean I have to manage all of this?”  She looked skeptical but figured it out; today her kids are learning the same skill. 

Lynne Finch helps parents teach their kids about money from their first allowance to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school. 

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When your kids manage their money as a number, they become better money managers

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