How Do You Teach Kids to Manage Money?

Question: Do you give your child an allowance? Or how else do you teach your kids about money?

Answer: Kristen Materne
We do not give our children allowances, but intend to. They are 5 and 7 and I have heard (through the 7-year-old) that absolutely everyone gets an allowance and he is the only one who doesn’t.  I don’t really believe him.

I am a firm believer in allowance as a means for teaching children money management.  I had an allowance as a child and the rule was that I had to save some, donate some, and could spend the rest.  I don’t remember what the exact amounts were, but I think it was about 40 percent save, 40 percent spend, and 20 percent donate.  That is the model I intend to use when we finally get around to doing it. 

The stumbling block I have is the amount.  I think maybe I got a quarter a week, and that is the tricky part.  I want it to be enough so that it feels like real money, but if it’s too much, then they will be saving and spending an awful lot – more than I would spend on a weekly basis now. 

I don’t want them to be able to afford Porsches at 16 just on their personal savings accounts.  I also want some leverage – if they can afford what they want whenever they want it, there’s no room for me to praise or withhold.

I do want them to learn fiscal responsibility, and we do talk about cost and whether things are worth what they cost.  They have savings accounts and they do save a lot of what people give to them for birthdays. 

They donate money occasionally and toys when they outgrow them (sometimes willingly).  It is a frequent part of the conversation when we are running errands and buying groceries.  A dollar for that ball from the machine in the entry to Shaw’s?  Let’s talk about how that ball is nowhere near worth a dollar.  But so far no allowance.

Answer: Tricia Kelly
Anyone who has been shopping with a child knows the genius of targeted sales marketing.  All that sugared cereal, all those bright plastic thing-a-ma-jigs are perfectly accessible to anyone under four feet tall. There’s the wide-eyed look, the gasp, the reach, then the inevitable, “Mom, can you buy this……pleeeeeeeaaaaase??”

My personal exasperation with this question coincided with another attempt to figure out what to do about allowance for my kids. We had half-heartedly started it a few times, had even created a few job charts that outlined what chores earned what money, but we never seemed to remember to pay the money out on a regular basis. Plus, I got really tired of the constant quality control: Did we pay half-price if they made the bed but forgot to pick up the dirty clothes?

Recently, we took a step back to analyze the big picture of what we were doing and why. We had two goals in mind: Teach the kids about money and teach them about family responsibilities. 

We had been trying to combine the two into allowance and it just wasn’t working. So, we took some advice from an expert in the field. Vicki Hoefle, founder of a program called Parenting on Track, has a simple idea that works for us.  Her approach looks at these two goals as separate but equal: Money has nothing to do with family responsibilities. 

This kinda made sense to me: I mean no one is paying me to do the laundry around here, right? So, we instituted two distinct plans.

First, we brainstormed a list of things that had to get done around the house and divided out who should be responsible for what. Letting the kids come up with the list worked great – they had to actually stop and think about what’s needed to keep a household movin’ and shakin’. 

They each have their own weekly jobs and then we have some that rotate every week.  (Our eldest created a cool job wheel that we actually use now.)  We talked about these as simply things that we did because we’re all in the family together.  Taking money out of the equation was a real ah-ha moment for me.

Second, we give each kid some cash every week – in fact, we give them the amount of their age.  Quick math (12+10+7 ) means we’re shelling out some serious bucks here, and you probably think we’re nuts.  But, here’s the thing – that’s it.  They need to use that money for everything. 

We buy the basics (food, school requirements, clothes) but they do the rest.  Want a new yo-yo? See if you have enough to get it. Get invited to a birthday party? You should probably buy your friend a present. Covet the designer jeans, not just the no-name ones we’ll buy you? You’ll need to pay the difference. 

This system has been working wonders for us.  It’s not flawless, but we like the opportunities we’ve been given to talk to our kids about money. We encourage them to have some to spend, some to save, and some to give away. They’re each learning the hard away –the real way - about the value of money. 

Now, when we’re in the store and they reach for something, they look at the price tag and mull it over.  More often than not, it goes back on the shelf and we can head on home in peace.

Answer: Anika Denise
I don't believe in allowances. I leave the "money for nothing" thing to the Grandparents.

In our house... you gotta earn it. We do, however, offer our kids compound interest on money that they save. Seriously.

If they get $10 in a card for their birthday and (piggy) bank it vs. spend it, they get paid on the principal plus interest at a rate of 5 percent.  We also give the kids a little bit of money for helping with "extras" around the house, like folding laundry or raking leaves.  

Eventually, we plan on opening up savings and checking accounts for them when they are old enough and teaching them how to balance a checkbook, budget and save.