Teaching children how to manage money is no easy task. It takes years of practice and discipline to fully understand the difference between a want and a need and how to save while still enjoying your life.
Many transactions are made online, through contact-less payment, with a credit card or through an app. The exchange of physical currency isn’t always our “go to” method for payment, meaning children might not fully understand that money isn’t always a click away.
Offering an allowance is one way to provide necessary skills that will help young ones understand money management and even how to use a basic savings account. These skills can help a great deal in the long-term, especially as children grow up and begin budgeting on their own.
Establish a system for you
There is no right or wrong way to give your kids an allowance. Some households give allowance for completing a task or earning a certain grade while others will give an amount and expect nothing in return.
One factor you might want to consider is teaching your kids the save, give and spend approach to managing money. With this exercise, your kids will have to save and give away a certain percentage, and the rest of their money they can keep and spend as they like.
We all look forward to payday so be sure to add some consistency to your system so your kids will know which day to expect their allowance. This way, they can start to budget and track expenses just like you do.
Making financial decisions
As an adult, you make money decisions every day – some as simple as packing your lunch vs. eating out and others more complicated like saving or investing your funds. Allowing your kids to make their own financial decisions can teach them a valuable lesson about how far money can stretch and how they want to use their money. One week they might decide to save for a large purchase or another they might decide to spend everything they earn on a new toy.
You might also consider setting up a checking and savings account for your children so you can teach them how to use online banking tools and baking apps. The earlier your children learn how to use these tools, the easier it will be for them when they leave the nest for college or start living on their own as a young adult.
Choosing the allowance amount
Every family is different. There is no right or wrong amount you could give your child, but whatever you decide to give should be built into your own monthly budget. Consider how much money you can spare every week and your comfort level with allowing your kids to manage a certain amount of money on their own. You might also consider changing the amount depending on whether a task is completed or if your child is old enough to have their own part-time job like babysitting or working at a local store.
Deciding to start an allowance system for your family should be a personal and fun decision. Through this simple gesture, you can teach your child several valuable lessons about money management.
Abby Wendel is the president consumer banking at UMB Bank.