Giving your kids an allowance is a great way to begin teaching them about money. It’s also a good way to cut some spur of the moment spending out of your budget.
Kids can start learning about money surprisingly young – sometimes even preschool age. But for most kids, it makes sense around the first or second grade. Before you give your children an allowance, talk to them about what they can use it for and what they are not allowed to use it for. Maybe for your family that means your children can buy candy (as long as it’s not right before a meal) or toys, but not a pocket knife. Tell your children that they get to choose what they spend it on within the boundaries you’ve set and that they can ask you if something is in the approved category. If your children spend it on something they are not allowed to, you’ll take what was purchased and they don’t get the money back. And – this is important – after the allowance starts, you won’t be buying those things for your children when they ask. This is where the savings come. Instead of arguments at the checkout counter about whether your children can have some candy or the new toy they saw advertised, the discussion turns to them using their own money for it.
How much to give depends on your situation. A good rule of thumb is about one dollar per week for every year of your child’s age. So if your daughter is six, she gets six dollars a week. That might seem like a lot, but remember that you’re not buying some of the things you usually buy for her. If in doubt, it’s better to go too low and increase as she gets better at making decisions.
Having your child’s use of the money as a teaching opportunity is key. You can ask questions, but without criticizing decisions. For instance, it’s better to ask if your son is sure he wants to spend his money on that water gun and perhaps point out that it doesn’t look like it’s very sturdy, than to tell him it’s a stupid thing to buy. And if it breaks, don’t say I told you so. Gently ask how he feels about it or tell him you feel badly that it broke. That’s a better lesson than his parent gloating over his defeat.
It’s important to resist the temptation to bail your child out of their mistakes. Many of us parents would rather endure a negative outcome than see our child go through it. But that’s how the child learns. So discuss financial victories and defeats, but don’t be the safety net. That’s a poor practice to start and it can get really expensive as your child grows older.