The world of money – it is a jungle out there.  And, teaching your children financial responsibility can go a long way to helping them understand saving and spending as an adult.  So, where do you start and what are some strategies to making the allowance gig a teachable moment?

We have a pretty good system at our house.  It isn’t foolproof, nor is it probably the best for every child.  But, it works for us with our eight year-old, and hopefully it will give you some ideas of your own.

First of all, make sure that your child is really ready for an allowance.  Do they understand the importance of money?  Do they see the value in dollars and coins, and do they take care of money when it is given to them?  If you are picking up quarters from under the couch where your child shoved them, your child is probably not quite ready to learn about an allowance.  On the other hand, if your child keeps it in a special place and shows and interest in finding out how to get money, then they are probably ready for an allowance.

Make the amount doable for your family.  Some people follow the dollar-per-age rule, some do a $.50-per-age, but we simply cannot afford that.  So, in our house, our eight year-old gets $2.50 each week.  And, while kids with bigger allowances may have to chip in for things such as birthday presents for friends and such, we don’t do that with ours.  He gets the $2.50 each week, and we provide for other expenses that arise.  But, it isn’t “free” money, that $2.50.  We built in a savings system for him.  Of his $2.50, 10% of it (or $.25) goes to our church offering.  For us, it was important for him to see the value of contributing to our church family.  Then, $1.00 goes directly into a bank on his dresser.  This is his “savings account”, and every quarter, we empty it and add it up.  Then, we (the “bank”) pay him interest for keeping his money there.  While this money isn’t necessarily off limits, he knows that he has to be really careful about spending it, because if there’s nothing in the bank, he doesn’t get any “interest”!  The rest of his allowance goes into his wallet for spending money.  This is HIS money to spend as HE chooses.  He saw early on how important it was to budget and save for things he really wanted.  And, while we don’t tell him what he can and cannot spend his money on, we do offer advice and suggestions to him, which he does carefully consider.

His allowance is his each week, no strings attached.  We don’t pay him for chores or grades or for good behavior.  He has, however, learned the art of negotiation, and he will offer to do “extra” chores around the house if we agree to a payment.  And, sometimes he’s right; for an eight year-old to sweep out the garage is a daunting task, and I am happy to hire him as a bit of ‘contract labor’!  Our thought is that tying an allowance to chores only sets you up for chores not being done when there’s no incentive to spend money at the time. 

It is a good system we have, even though I have a feeling a raise negotiation may be in the works in the next few months.  But, it has been an invaluable lesson in saving, spending and budgeting for our child. 

Let us know what ideas work for you.  Leave a comment and share your thoughts and stories!