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7 Tips for Teaching Young Kids About Money and Managing an Allowance

tips for teaching kids about money and allowancesAs I get my only girl ready to start kindergarten this month (gasp!), I’m starting to learn so many things that come with this new “big girl” territory. There are back-to-school supplies and clothes to be bought; new morning and night routines to start adjusting to; less liberty to travel at whim; school projects and fundraisers; new friends in the horizon and the realization that my girl’s flight towards more independence also means she’ll need to learn about money in the form of an allowance.

Our talks about money can no longer rely solely on putting mami or papi’s left over coins and an occasional dollar here and there in the piggy bank. Or me stopping her flat on her nagging tracks when she’s making a plea for yet another Barbie she must have, to which I respond: “¡Es mucho dinero!” But does she even know what the words “too much money” really mean? And who’s supposed to teach her? Me? {Insert cynical laugh}

How am I supposed to teach her about money when at my 40 years of age I’m still coming to terms with the concept of it? I have no problem calling myself financially irresponsible or illiterate, nor do I hesitate to blame it on my parents. Yeah, nice cop out, but true.

I was never taught to deal with or manage money, nor did I ever really need to until I was in college and I learned, the hard way, that credit cards really do need to get paid. I never had a savings account of my own, or a college fund, or even a piggy bank, come to think of it! Aside from that, I always associated money with greed and ego, so I somehow unconsciously would run away from it. Thankfully, it would somehow never let me run too far! Counting my blessings here.

But I digress…back to the present.

I do want and need my girl to learn about the value of money and learn how to spend it, save it, invest it and donate it. But she is only five years old, so where to start?

With an allowance, I’m told. And now, the back-to-school season, is the best time to start.

I recently had the chance to join a webinar titled “Moms Talking Money,” presented by Woman & Co, a service of Citi, where Linda Descano, President and CEO, told us that kindergarten is actually an ideal time to give kids their first allowance and introduce them to the concept of money beyond knowing their coins. Best practice, according to Descano and other experts, is to give them one dollar per year of age. In this case, my girl will get $5 dollars each week. Some parents decide to do it bi-weekly, and that’s fine too.

However, it’s not as easy as just establishing a dollar amount and handing it over to her, I need to teach her how to make the right choices with her money, yet allow her to make those choices — for better or for worse.

Since I have no personal experience to rely on for best practices on teaching a young kid about money and how to manage an allowance, I’ve relied on the trusty inter webs to dig up some tips and share with you:

#1.  An allowance is not a bribe. Try not to make the allowance dependent on the kids completing the chores they’re already expected to do. This can create a bad habit of them only wanting to help because they expect something in return. I also don’t believe in making the allowance a basis for a threat of losing it as punishment. I believe an allowance should always be given once established and negotiations be made otherwise. Not all experts agree with this, in fact, Suze Orman thinks it’s a really bad idea to give them an allowance if they haven’t “earned” it by doing work-pay chores. She even suggests starting at age 4. Apparently this will teach them to not feel entitlement with money. I just feel prefer to make the allowance a way to teach her to make responsible choices about money, and have her complete her chores otherwise. I don’t think a 4-year old needs to be learning about work just yet!

#2.  Let them make their own choices. Before you give your kid his first allowance, make sure you’ve already talked about money and the choices she can make with it. She can choose to save it for something she’s really been wanting, or put some of it away and spend the rest, or just donate some. When shopping together for a toy, teach her to know how much each item costs and which one would be the best choice for the money.

#3. Use cash as much as possible. Yes, I know this is getting harder and harder to do, but for kids — and even for adults! — it’s very difficult to get a sense of how much money they have if they can’t see and feel the coins and bills. Passing a card through is just too abstract for this process.

#4. Lead by example. I’ve recently been starting to feel guilty when I take my girl to the store with me and I won’t allow her to buy more stuff and then I walk out with a bag load for myself. How is that teaching her to value money and only purchase what she needs? Maybe the solution is to do my shopping without her? Yeah, there we go!

#5. Teach them to think about big purchases before making them. I find that this exercise applies to myself really well to stop me from impulse purchases. Make it good practice that if your kid sees something he really, really wants to ask him to think about it overnight and if he still feels strongly about it the next day, then he can use his money to buy it. A great tip that has worked for us is to take a picture of the item while at the store with the intention of remembering it later. Not once has she come back the next day to ask about it, at least not yet.

#6. Don’t just tell her money doesn’t grow in trees, show her. Encourage her to have a lemonade stand or bake sell or anything she wishes to make and sell. This will teach her the value behind the concept of making money and working, just like her mom and dad do to bring in the money she gets. You can also use it to teach her about investing her own money to put the stand together and seeing if she makes or losses.

#7. Make it a routine. Establish a day of the week when he will get his allowance and stick to it. Children of all ages strive on routines and this helps him monitor his money and how/when to spend or save.

Share with me in the comments: when did you start giving your kids an allowance and how did you teach them how to manage their money?

{Photo credit: tonyhall on flickr}

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