Do you know why most people make big financial mistakes like impulsive shopping, poor spending habits or accumulating debt? It’s because they were never taught about personal finance. Schools rarely cover the topic and parents often neglect to teach these concepts to their children. This is a disservice to the youth of today. It is vitally important that you teach your children how to save and spend wisely. By giving them an allowance, you can teach them lessons about money that go far beyond those few dollars a week. These lessons will become ingrained and will last a lifetime. Here are some tips for teaching your children about money with an allowance.
When to Start
As soon as children can count to 10, you should be teaching them about money. While they may not grasp the concept of money per se, if you tell a child that something costs $4 and he has $10 in his hands, he will be able to count that money out to you. This will help him learn basic math skills like subtraction and addition.
How Much Should I Give My Child?
How much of an allowance to give your child per week depends on many factors. One of the biggest influential factors is your own income. Assuming that you’re in a stable financial situation and can afford to give your child an allowance, $1 for the child’s age each week is a good place to start. A five year old, for example, will get $5 per week. You can give more or less depending on your financial situation. Perhaps you prefer to give your five year old $5 per month. That’s okay, too. Just be consistent so your child knows what to expect and can spend and save accordingly.
Spend, Share and Save
Giving the money to your child to do with as he wishes is a big mistake. It teaches him nothing except that he gets a certain amount of money each week or month. To instill good financial values, have your child put his money into each of three categories: spend, share and save. Money jars for each category are a great option when using this method with younger children because they’re able to see how much money is in each jar. If you give your three year old $3, have him put $1 in each jar to spend, save and share. The ‘share’ category is for donating to charity, giving to the church or helping a friend. Allow your child to spend the money in the ‘spend’ jar as he wishes. To encourage him to put more and more into the ‘save’ jar, create a savings goal. If he wants to save up for a special toy, put a picture of the toy on the jar along with the price. This will encourage him to save for longer periods.
Teaching your child about money doesn’t have to be difficult. Starting with simple concepts like the ones mentioned above help your child to learn how to spend, how to save and how to contribute to charity. Those are valuable lessons to learn at any age.