When parents provide their kids with money to manage using allowances, they create one of the most educational in-home experiences to prepare their kids for being responsible with their money as adults. Parents are, in effect, transferring control to their kids to manage money they would spend on them anyway.
Today’s kids are receiving anywhere from $800 to nearly $2,000 dollars a year or more while living at home. But are they really learning how to manage that money? Expecting schools to teach money management, or relying on allowances apps ignores the real power parents have in providing a hands-on money management experience for their kids.
Learning about money starts in the home and parents don’t need to be financial experts. In reality, only parents can teach their kids the skills, behaviors and system to prepare them to be adults.
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 Education Council
Start allowances for your kids early
Parents know their kids habits and attitudes, especially when it comes to spending and savings. Read: Spender and saver kids blog
Moms, especially, are often more proactive when it comes to teaching kids about money. As a mom, I thought it was my responsibility and created The No-Cash Allowance to teach my kids how to manage money, later writing my book to help other parents.
Parents also know that kids understand what money does when they are very young.
Researchers at the University of Wisconsin-Madison report that by the age of 3 most kids are able to understand the basic concepts of value and exchange that are central to economics
Parents have the advantage of starting early. A three-year-old with an allowance account will have 15 years of hands-on experience managing their own money before graduation.
The value of money specifically is not something that’s taught in schools, which means that ultimately, it’s up to parents to teach their children how to use and manage it best. This is just one of many important values we as parents want to instill. Mark Cuban
Make allowance a learning experience
By following some consistent practices over the years you can help your kids develop habits and behaviors that they can take with them when they leave home. You do this by giving your kids money with control and responsibility to manage by themselves.
- Establish a consistent process
- Provide reliable transfers of money to kids control
- Require kids to keep track of money as a number
- Use The No-Cash Allowance as a guide
The No-Cash Allowance is a system in which a child controls all funds received from parents through a written account initially kept in the home. Adults act as bankers and the child as account owner. The child withdraws, transfers, and deposits funds while keeping a running balance. Kids get hands-on experiences using their own money to develop essential life skills such as:
- Money math
- Decision making
- Record keeping
- Financial language
- Virtual money concepts
The book focuses on teaching kids to manage money as a number in an account with chapters on the following:
- Looking at money attitudes in general
- Understanding the differences between child and adult money
- Teaching kids the decimal cash system
- Explanation of the no-cash allowance system
- Instructions on how to set up for your family
- How to influence behavior
The chapters on how to use the system with different age groups helps parents tailor allowances for their family.
- Ages 3-5: Children know what money does before they know what it is. Activities introduce money basics.
- Ages 6-12: School activities and an expanding social life offer new opportunities for money management.
- Teenagers: The teen years are the financial dress rehearsal before adult. Help your teen start managing money in an almost-adult fashion.
Parents, including financial professionals, say they didn’t realize that their kids were so capable until they started using The No-Cash Allowance. One mother told me how amazed she was at how capable her children are with non-monetary things like growing responsibility and making decisions.
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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.