At the foundation of your children’s financial intelligence should be this undeniable truth: It is not the amount of money you have, but what you do with it that matters.
This is true for a child managing a $5-dollar-a-week allowance or a corporate executive with a $5,000-dollar-a-week salary.
For the better part of my life, I didn’t know this truth. On the contrary, I believed that more money was the answer. I was convinced that if we just made more money, won the lottery, or received some unexpected inheritance, all of our money problems would vanish. But the more we made the worse our problems became. Because I didn’t know how to manage what we had, more would have never been enough. We didn’t save, we didn’t give, we didn’t plan, and we had no idea where all the money went.
Unless your children learn simple, wise money management techniques, more money will never be enough.
The simplest way to get started building financial intelligence into your kids’ minds and hearts is by putting them on an allowance and then requiring them to suffer or enjoy the consequences of their financial decisions.
Here are five good reasons to put kids on an allowance program:
1. Teaches kids about real life
Nothing beats an allowance for a hands-on course in values. Having their own money teaches them about responsibility, consequences, saving and charity.
2. Helps distinguish needs from wants
Do they really need that new video game or those peace sign earrings? Having their own money forces kids to think about what to spend it on. It doesn’t take long for them to realize that when it’s gone—it’s gone!
3. Puts an end to the nickel-and-diming
You create a set budget item called “Kids’ Allowances” and that stops that constant drip, drip, drip of money flowing from your pocket to random stuff for them.
4. Builds trustworthiness in a child
By giving kids money to manage, you demonstrate that you trust them. And they soon learn that to keep the money coming, they need to become trustworthy.
5. Promotes self-confidence
Managing money has a magical effect on a child’s self-esteem. Teaching kids how to give some of their allowance to charity, save some for a long term goal, and spend some now gives them the tools of self-reliance.
There are no set rules for when to start an allowance program. However, I suggest waiting until kids are old enough to understand the concept of taking care of things and making choices, which is usually around age 6.
Though many families use age to determine the amount (by age, $10 for a 10-year-old is one example), think about how much money your child needs. Turning money over to them that you would be spending on them anyway is a good way to start thinking about this.
Whether it’s weekly or monthly, kids do better when you stick to a schedule.
Younger kids tend to manage their money more effectively when they get it weekly, since out of sight often means out of mind.
For older kids, consider a monthly schedule so they can learn about budgeting.
Work for pay?
Think about your goals when it comes to the allowance-for-chores quandary. If your main goal is to teach your kids to manage money, give them a basic allowance with financial “chores” attached, such as paying for their own collectibles. If you also want to teach kids the value of working for pay, pay them for extra chores on a job-by-job basis.
The purpose of an allowance is to teach kids to become self-governing with money. Encourage kids to save a given percentage, set aside a percentage for charity (they’ll learn the value of giving back), then give them the freedom to decide how to spend the rest.
Want to get your children’s allowance program off to a great start? Make sure they have some kind of physical bank, box or jars that will help them to divide and manage their money. Consider the Moonjar Classic Moneybox. This clever savings bank is actually three banks in one to teach children to save, spend and share their allowance.
Over the years Moonjar has received multiple awards for innovation and it’s no wonder. Moonjar is well made and easy to use because kids even as young as age 4 years can understand and learn from the process. It makes for a timeless gift that will inspire and teach children to save, spend and share wisely for a lifetime.
On my way to getting a financial life, our kids got one too. Our boys were ages 6 and 7 when I hit rock bottom and experienced a turning point that would go on to change my life forever. My husband and I came up with what we called the Hunt Kid Financial Plan that we instituted in our family, even while we were deeply in debt. I was so determined that our boys would not turn out like me. And so … we all learned together, although the kids were totally unaware of what was going on in our lives. They took to the plan and ducks to water!
Had our plan not been successful, I would have never written a book about our journey and our kid plan in detail. But it was successful and I’m proud to tell the world that our sons, now adults, are two uniquely awesome, financially confident men. No credit-card debt ever, no student debt ever. Both sons bought their first cars with their own money—all cash they’d saved—at age 16. Both sons went on to become homeowners in pricey Orange County, Calif., by age 25. Bottomline: We debt-proofed our kids and it all started with an allowance program.
I would be honored for you to read my book, Raising Financial Confident Kids. It tells our story, details our plan and is as relevant and practical today as this plan was years ago when we first came up with it.
First published: 11-28-16; Updated 4-24-19