Kids and Allowance: Start Early for Best Understanding

While kids typically learn about money and its value at school (and sometimes at daycare), how to manage money happens at home. Providing your kids with an allowance is a great tool for creating early understanding about the concept of money. Experts say that starting when a kid is old enough to identify a quarter, dime, nickel and penny as well as a $1 and $5 bill is a great time to start. Here are some quick ideas for getting started:

• Start with math money lessons. Stack coins so that a child can learn to associate that a $1 bill is the same as four quarters, 10 dimes, 20 nickels or 100 pennies. If you child can start to grasp the concept that a bigger coin doesn't mean "better" and that a dollar bill can be broken into change that equals the same amount, your child is ready for the ABCs of money.



• Start with an allowance at an early age. An allowance for a 3-year-old can be as little as two quarters each week to go toward a drink, a ride on the coin-operated horse, or piece of candy. Even a small amount of money to call their own that a young child can put into a purse or wallet lets them start the concept of worth and how things cost money.



• Establish an appropriate amount. This is where it varies greatly. Some financial experts recommend paying a child an amount equal to their age each week (a 7-year-old gets $7 each week). Others think that is too much and recommend an allowance that is half of their age. For older kids, you can calculate weekly expenses and then add some additional funds to either save or to be able to spend.



• Be consistent and firm. Remember that you are the teacher about money management, and if you say one thing and then do another, then you are teaching the child that the behavior is okay. If you tell a child that he has to use his allowance to buy a toy and then give in and buy it for him, then he has learned there are ways around saving. That's not to say you can't buy your child toys. If you plan to buy a child something, then don't tie it to his allowance. Be sure toe keep consistent and then not to give into pleas and whines for "exceptions."



• Allowance should not be tied into family responsibilities. Experts all agree on this one: do not tie allowance into family chores or responsibilities; they do these because they are contributing members of the family and not because they get rewarded financially. However, you can always offer "extra" chores for money that don't normally fall into the scope of chores. Having kids do extra duties for pay will help their self-worth and teach them the value of working.



• Teach them how to manage their money. It's not enough to simply give a child a billfold and ask them to keep track of their money. Smart parents will start showing them how to track expenses and weekly savings vs. a planned expense. An effective parenting tip is to install a small whiteboard in a child's room for the use of tracking savings and expenses for easy viewing and updating.



• Don't forget about raises. Once you set an allowance rate, don't forget about increasing it as a child gets older or increases responsibility levels. You expect periodic raises with work; remember, childhood is a kid's job too!
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