Teach Money Management Through Allowances

Do you know the importance of teaching money management to kids? Many children today grow up not knowing how to manage money. Their parents give them an allowance, their child spends it, but no money management is actually taught. One of the greatest favors you can give your child is the knowledge of how to budget and manage their finances.

Giving your child an allowance is a good way to teach them to manage money and know the world of finance. Teaching money management to kids is really essential to develop your child in daily routine life. There are three different options that you can use to provide your child with allowance.

1. Give your child allowance and expect nothing in return. This method least mimics real life. Many parents feel that their child’s only job should be going to school and being a kid. Thus they should receive an allowance without earning it. Unfortunately these same children rarely learn to manage their money and enter adulthood only to face debt or bankruptcy.

2. Other parents feel that nothing in this world is free and allowance should not be either. The child is required to complete certain chores in order to earn their allowance. This is the method that I use with my own children in conjunction with method three. The drawback is that if the child isn’t motivated by money then they will not work to earn their allowance.

3. In this method the parent assigns each chore a specific amount of money. Then the child is allowed to choose the chores that they want to complete. The more chores they do the more money that they make. This method is similar to real life in that those that work harder and longer typically make more money. This method allows children to set goals and plan to achieve them.

Now that your child receives an allowance it is important to teach them how to manage it. Incorporate teaching money management through allowances into everyday life.

• Open a savings account with your child. Require them to put a certain percentage of their allowance into savings. Growing up my father made us save 50%. At the time I hated it. Now I am grateful that I learned the importance of saving.


• If your child wants something make them buy it with their own money. This teaches the principle of saving for items. They also learn to budget and only buy those things that are really important.


• Discuss credit card debt and interest rates. Many children do not understand that credit cards are not free money and that they must be paid off usually with high interest. Making minimum payments only pays the interest and does not actually pay off the debt.


• Talk about the importance of establishing and maintaining credit. My brother got a credit card when he was sixteen, used it to pay for items, and then paid off the debt each month. This way he began building up his credit.


• Let your children know what is required to buy a house. Help them understand that the money choices they make while young will affect them later.


• When your child is older let them help pay the bills. They will be surprised to learn how much basics like housing, food, a car, and utilities cost.


• Have them balance their own budget each month, keeping track of money earned and spent.


• Teach them to distinguish between wants and needs. Teach your child to be buyer savvy. Every year I would receive a certain amount of money to spend on clothing for school. I learned to shop sales to make my money go farther. A skill that I appreciate as a young mother.