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Teaching Kids About Spending and Saving

Feb 12, 2011 | By Harvey Craft

Young girl counting her moneyChildren need an allowance. An allowance is more than a way for children to buy goodies. An allowance presents a great opportunity to teach fundamental economics and good financial habits.

The older children become, the more they need to know about economics. Obviously they have valid reasons to make an occasional purchase but have to depend on a parent or other adults. At the right time, however, parents can choose to offer a little freedom with a small amount of cash. Parents are the ultimate judges of the right age for an allowance, but it is wise to consider the following tips for when a child is ready.

Does the child:

  • Comprehend the use of money?
  • Know how parents get money?
  • Have patience to not want to spend all of an allowance as soon as possible?
  • Recognize the different coins and their relative values?
  • Have responsibility enough to keep up with his allowance?

Use an Allowance to Teach Spending and Saving Skills

Parents typically think of offering an allowance in exchange for household chores, and certainly chores can substitute as the "job" the child fills in return for a "salary". If chores are the main reason for giving an allowance, then parents should discuss exactly what is expected in turn for the payment. The child's tasks should be appropriate for the age and not so long a list to overwhelm the memory. Posting a list of tasks that the child can check off might be helpful. If he can't read, the tasks can be represented by computer graphics.

Savings, spending and charity money jars

Aside from chores parents can use an allowance to acquaint children with the following concepts:

  1. Saving. Establish a requirement that the child save a fair percentage (or stated amount) of his allowance. Saving is for security so there will always be money for an emergency and for accumulating money for some special purpose. There must always be some money in the "account".
  2. Wants vs. needs. When children begin to talk about what they want, ask them if they need it enough to buy it with their allowance.
  3. Consequences for misbehavior. A deduction from or denial of an allowance temporarily can serve as a consequence violating a rule of behavior.
  4. Bonuses. If a child goes beyond the minimum task requirement, parents can consider a bonus.
  5. Fees and fines. If negligent behavior results in damage, require the child to compensate fairly for damage done.
  6. Loss. Children will sometimes be careless and money disappears. Don't replace it. It happens to adults. Better to learn sooner than later.
  7. Asking for a raise. It will be a real issue some day, and it's a valuable skill. Math skills. Money has value that can be applied to teach adding, subtraction, etc.
  8. Value. The child will come to learn that the cost of some items is excessive, reasonable, or a steal. Young judgments might not agree with parents, but they will learn by experience.
  9. Charitable giving. Discuss with children how they can help others. The child might want to pick out one or two charities as favorites or wait until the opportunities present themselves.

The above list is not exclusive. There will be other issues about economics that arise unexpectedly.

Determining the Amount of the Allowance

Piggy bank and coinsThere is no rule for the amount of an allowance, but $1.00 to $4.00 per week should suffice for a starting wage, depending on the age of the child. It's probably best to be conservative to start. Certainly children shouldn't earn so much that they can satisfy all of their material needs each week and have change.

Talk with the child about needs and wants, how they plan to spend their money, and what of that they want to have will require saving. This allows them to gain experience on how adults delay gratification, save, and live according to a budget. Suggestions offered by children should be treated with respect even if they are not practical. They need opportunities to express their ideas about economics.

When the child receives extra money as a result of a gift, have a policy in effect to direct how the money is to be used. Encourage saving above spending, as the normal inclination will be to spend. A little simple bookkeeping is a good idea to keep up with savings, and the savings should be kept in a separate place.

Monitor spending habits to be sure the allowance isn't being spent frivolously. If so, there may be good reason to adjust it. For children to spend all of the money on candy is not a good practice. Supervise the process for a reasonable time to encourage wise spending habits. Once the child begins to practice the basics of personal economics, parents can enjoy watching the responsibility grow.

About the author:
Harvey Craft
 is a retired educator and former principal, with extensive experience in teaching grades six through to twelve. He is NBPTS certified in Adolescent Science and now spends his time in educational research, consulting, and freelance writing.
Click here to contact or read more articles by Harvey Craft.

Tags : kids, children, child, saving, spending, money, allowances, planning, tips, advice

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