Published on 08/27/09

Teach kids financial facts of life

By Michael Rupured
University of Georgia

Teaching kids the value of money can be harder than getting them to clean their rooms or eat their vegetables. But the knowledge will save them a lifetime of trouble.

Children need to learn the three purposes of money: saving, spending and sharing. An allowance can be the best way to teach them these skills. It helps them learn how to live within their means and be educated consumers.

Children should learn to put some money aside for large purchases and unexpected expenses. They should learn to be generous and charitable, too. Suggest they donate money to a worthy cause.

There are many ways to structure an allowance. Each family has to decide what will work for them in terms of when to give it, how much to give and the expected financial responsibilities.

Avoid giving children an allowance based on good grades or household chores. Chores are the responsibility of every member of the family. An allowance is not a reward for good kids. It’s a tool for teaching children financial management.

Giving your kids an allowance on the same day of each week will allow them to develop their management skills. A regular allowance teaches them to stretch their money from one week to the next, instead of spending every penny immediately.

An allowance can begin as soon as a child can count, or around five years old for most children. Start with 50 cents or a dollar for the younger ages and increase the allowance each year. As the child ages, each increase in allowance should be coupled with an increase in financial responsibility. For example, you might increase the allowance with the expectation that they now pay for their own school lunches.

Rather than a check or large bill, the allowance should be small bills or coins that can be divided into marked envelopes or containers. Mark containers for saving, spending and sharing. Decide in advance what percentage should be used for saving. This strategy will reinforce the concept of paying themselves first, automatically putting money aside for saving before being tempted to spend it.

Parents may decide their child can pay for luxury items such as a special toy or an expensive pair of sneakers. If the child has to pay for the sneakers, which may be too small in a few months, they will think twice before buying the next pair. Kids can learn from their mistakes. This type of arrangement will encourage the child to become an educated saver and an educated consumer.

The allowance for an older child might be a deposit to their checking account, including gas money, money for clothes or other responsibilities. The goal is to fully prepare them for the realities of the financial world before they leave the nest. At any age, it is important for child to understand that the money must cover needs before wants.

(Michael Rupured is a family financial management specialist with the University of Georgia College of Family and Consumer Sciences Cooperative Extension.)

April R. Sorrow is a science writer with the University of Georgia Public Affairs Office.