How do kids learn to manage money? The depressing answer is that most kids today have more money to spend and at younger ages than ever. Unfortunately, most parents don’t deal with money management skills until their children are young adults. By then, the bad habits are well set and the problems can be both costly and emotionally charged.

So, back to our opening question, how do kids really learn to manage money? Like most important life skills, kids learn through their own experience and the guidance they get along the way, or trial and error with help from a coach. This is where an allowance can become the perfect lesson.

Every parent is giving their kids money, allowance or not. If you are not giving them an allowance, you are managing their money for them, deciding what they will buy and do. That leaves them in the role of salesman and manipulator. Stop doing all the work and let them learn to manage their own money!

Allowance Basics

  • As soon as your child shows an interest in and understanding of the concept of money as a means of buying things they want, they are ready for an allowance. This might be as early as age 4.
  • Provide a regular amount of money weekly. This is what they practice with.
  • Having a specified amount of available funds forces kids to think about how much things cost and to make choices.
  • Total up the amount of money you are giving them now and make that the amount of the allowance. Make a list of what they are expected to pay for with their allowance. Then let them make their own choices.
  • Be sure to include money and expectations for three uses: money to spend, money to save and money to share (gifts, contributions, etc.).
  • Set up a ledger or journal for the child to record their purchases and their balances. Review that weekly with them.
  • Don’t kick in more to cover the choices that they can’t fund. They will have more appreciation for the things they buy when they use their own money. It also ends the battles and nagging.
  • The amount can change as they grow older and their needs change. Reviewing it each year can be a great opportunity to learn budgeting skills, planning and so on.
  • Don’t tie the allowance to chores. Chores are part of the responsibility of being a family member. You don’t get paid for being the parent. If they fail to do chores, the loss of other privileges is a better consequence than loss of an allowance. Besides, do you really want to endlessly negotiate the “price” of doing anything you ask them to do around the house?