To meet these goals, I think we need to revisit the idea of allowances. In many families, an allowance is a little spending money that the child is free to spend on her- or himself. Sometimes there are some chores attached for earning it. But, in my experience, not enough families use allowances as an important teaching tool.
Think about an “allowance” being defined as the amount of money the family can allow each child to have control over in order to learn how to budget and manage money. To get a realistic look at what you are already “allowing,” make a list of all the times in the week that you are reaching for a wallet and how much you hand out each time. Add up every soda, every school lunch, every activity, every time a child asks for and gets a treat, every birthday present, every school request, etc. There’s usually an impressive gap between a kid’s allowance and what the child really gets to spend every week.
Now work with your child to decide on a lump sum that will be given to her or him every week like a paycheck. Make a list of the things that your child will have to pay for out of that sum and what will be left over for her or him to spend on her- or himself. Now you have the beginnings of a budget. A 3-year-old might be given only $1 a week that she is expected to divide between a piggy bank, the church collection plate, and a weekly treat. For a senior in high school, a budget might include an allotment for clothing, school lunches, certain activity fees, and part of his car insurance. As your child grows, expenses do get more complex and the “paycheck” should get revised to reflect new realities. Each shift in income and expenses can and should become a new lesson on how money works. The system is working when you don’t find yourself reaching for your wallet between paydays except for extraordinary, unforeseen expenses.
Of course, the system you develop also has to take into account each child’s personality and maturity. One of our kids started his own savings account when he was about 6. In contrast, his brother seemed to have holes in his pockets. Our saver would sometimes go without things he really needed because he was worried about having enough money for the end of the week. We needed to help him really understand a budget so that he could have confidence that if he stuck to it he would have what he needed. For the spender, we discovered that having to manage money for a week at a time was initially too difficult. He’d spend everything in the first three days and then have to go without lunch for the rest of the week. Although that was a good object lesson for a week or two, it became clear that he wasn’t mature enough to handle a week’s worth of allocations. He therefore got half his allowance on Mondays and half on Wednesdays until he learned to manage funds for a longer stretch. Two different kids — one needed help in letting go of money, the other needed help in holding on to it.
The next step in money education for your child is earning at least a part of what is needed to cover expenses. In my family, for example, kids are helped with money for gifts until they get their first job. Then they are on their own. Gradually, they become responsible for some of their clothing, for all of their entertainment, and for making major contributions to their savings accounts for their college educations. Other families I know give kids enough money for major clothing purchases (like a coat), but turn over responsibility for earning money for most of their clothes to the kids by the time they are in their teens. Other families pay a portion of their kids’ car insurance, but expect their kids to earn the balance and to cheerfully give rides to siblings as part of the deal.
Any system works as long as it is clear. What’s important is that the kids be given the opportunity to learn about income as well as outgo. It’s often quite a revelation just how long it takes to earn $10 and how short it takes to spend it. A teen who understands it takes four hours of flipping burgers to get that new CD has a very different perspective on money than the child who is given everything he or she wants.
As you and your children work together to develop their money management skills, you can add lessons in the use of a checkbook or credit card, making good purchasing decisions, managing savings, and maintaining a good credit rating. One mom I know includes her kids in paying the monthly bills. They have helped write the checks, address envelopes, and make entries in the family ledger since they were 8 years old. Another family gets everyone involved whenever there is a major purchase to be made. Kids help research the item by reading up on it in consumer magazines and comparing prices at different stores. Still another family has helped each of their teens take out a loan so that they could get experience in making monthly payments and could each build a credit history before leaving home. What all these families have in common is a commitment to educating their kids about the realities of money.
Good money management is an ongoing challenge for most adults. By starting this training early and providing support along the way, we can help our children build solid financial skills for their futures.
Last reviewed: By John M. Grohol, Psy.D. on 12 Dec 2006
