Parents often ask me, “When should I start giving my kids an allowance?” The answer is, “The best time to start a kid’s allowance is sooner than you think.”
Kids know what money is before they know how it works
Recently I overheard a young boy ask his mother for a quarter. The mother looked at him, “What would you do with a quarter?” The boy replied, “I’d go to the store and buy Star Wars stuff.” Already this boy knows what money is and what it does.
For a child that hasn’t even started school, this shows an ability to understand how money works. Obviously, there is one big problem with this kid’s shopping plan; a quarter isn’t enough to buy Star Wars stuff.
In our society, most young kids know a lot about money before they are old enough to read. They know what money does, and what to do with it. In their mind money is very easy to understand.
- Money gets stuff
- Parents have money
- Kids want to buy stuff
- Kids need money
- So kids ask their parents for money
A pre-schooler may not know the math of money. What they do know is how to make decisions. When they want to buy something they simply need to know if they have enough money.
Deciding to teach kids about money
As parents we decide that when it is time to teach our kids about money. We may give them money and tell them that they have choices: spend, save, or donate. But what they really want to do is buy stuff. They want to buy stuff they can hold in their hands.
Buying stuff is the first lesson in learning about money because kids learn from hands-on activities. Shopping with one’s own money is a big thrill for any child. But simply knowing how to spend money does not help a child learn how to manage money.
The key to money management is learning how to make decisions. If the mom gives her child the quarter, he will find out that a quarter isn’t going to be enough money for what he wants.
In my book, The No-Cash Allowance, I give parents suggestions on starting allowances for three different age groups. Each section includes how to talk about money, learning activities, and how to keep track of money and spending.
Ages 3–5
Having money is a big deal to the three-year-old. Using money activities and games provide hands-on experience. Going shopping gives a child the experience of making choices within a limit.
Ages 6–12
School activities and expanding social life offer new opportunities for money management. Spending responsibilities can be added. Learning to keep track of money and spending is a new skill. Parents can use a chore system that pays for some (but not all) chores in the family.
Teenagers
This is the last chance to prepare your teen for the real world. Start setting up checking, savings, and debit/credit card accounts. Increase the amount of teen-related expenses, e.g., spending plans for school, gifts, entertainment, communication, clothing, and personal care.
Discuss first year after high school graduation, set up a sample budget. Talk about wages, taxes, and income tax.
Time to start allowances is now
To help kids learn to manage money, start giving an allowance as early as possible. Continue to increase the money and responsibility.
Give your kids the opportunity to make their own spending choices and to live with the results. Whatever amount of allowance you give your kids, there will be limits to what they can buy. Decisions need to be made.
By setting up a system as explained in my book your children will start learning that managing money is all about making decisions. This is the basic building block of money management. As they grow expand their experience to include more financial learning opportunities.
Kids: This is your money
In your dialogue with your children explain to them, “This is your money. You are responsible for certain expenses. And, by the way, if you manage your money well you’ll have more to spend for fun. You are in total control. You will make good and bad decisions and sometimes will wish you had made different choices. As your parents, we can offer advice if you want it but don’t look to us to bail you out. Learning to manage your money is an important responsibility.”
Lynne Finch helps parents teach their kids about money from piggy banks 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.
