An allowance can teach kids valuable money management skills. But you may wonder how to get started. This guide can help.
You’ve taught your kids to ride a bike, to tie their shoes, and even a few cooking skills.
But have you introduced them to one of the most important life skills of all: how to manage money?
Unlike any other skill we teach our kids, knowing how to manage money could literally make or break their adulthood.
I’ve met financially-insecure people who make six-figure salaries. And I’ve also met people with modest incomes who are debt-free and have a healthy nest egg.
The difference is these people’s ability to set a budget, avoid debt, save for a goal, and understand other money basics.
Fortunately, there’s a simple tool that can give our kids the hands-on learning experience they need: an allowance.
How to set up a kids allowance – the RIGHT way
Experts agree that giving kids an allowance can teach them a number of skills that will serve them well in adulthood. But only if the allowance has the right expectations and parameters.
Here’s how to begin:
Once kids know how to add and subtract, you can give them an allowance
Money lessons can start as early as kindergarten or first grade – whenever your child learns how to add and subtract. Once children can do this basic math, they’ll have a better sense of how much money they’re actually spending or saving.
Decide which expenses your child will now be responsible for
An important way to make allowance a tool for learning is to give your child expenses they’re responsible for.
For little kids it doesn’t have to be much – toys, art and craft supplies, Legos, or books. Basically, anything that isn’t an essential purchase your child can be expected to pay for.
As kids get older, they can take on more essential expenses such as clothing, data plans, or gas for the car.
Be sure to discuss this expectation with your children before beginning allowance. It can be helpful to have it written in a contract so no one forgets the agreement.