By Linda Knittel, Senior Editor
Teaching my eight-year-old to be smart about money is important to me. A few years ago I started giving him a modest allowance in exchange for a few household chores, but I wanted to make sure that was enough to impart the values I hoped it would, such as gratitude, generosity and patience. So, I decided to seek the advice of an expert on the subject of kids and money.
In his book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, New York Times Personal Finance columnist Ron Lieber suggests that kids be required to do chores for the same reason we do them, because they must get done, and that allowance should be approached solely as a teaching tool to help kids learn about money. Here are a few of his tips for how to do allowance the right way.
Preschool-age children can distinguish between wants and needs, and often start inquiring about money this early as well. When they do, you might want to start giving them an allowance. If not then, start it when the tooth fairy arrives for the first time. Once they find cash under their pillow, they will like the idea of their own money, and allowance is a way to fulfill that desire and teach them at the same time.
Give Allowance for Its Own Sake
If you link chores and allowance, there will come a point when your kids have enough money to refuse doing the work. As Lieber says, leverage is important, but there are other privileges to take away that kids value more, such as screen time, car keys or social events. Besides, kids need to learn that no one will pay them to wash the dishes or do laundry once they are on their own.
Give Depending on Age
Lieber suggests giving a weekly dollar amount equal to the child’s age, with a raise each year on their birthday. But here is where his thinking gets educational; he suggests splitting that money into three jars: Spend, Give and Save. “Splitting the money introduces them to the idea that some money is for spending soon, some we give to people who may need it more than we do, and some is to keep for when we need or want something later,” he says.
Set Some Rules
Setting a few ground rules for each jar will help teach your kids the importance of money. As far as the Spend container goes, Lieber says he lets his daughter use this money essentially how she likes, and then she must live with her choices. Tell your kids the Give container is another way to share, but unlike toys on the playground, you don’t get the money back. Decide together who they would like to help, and donate when the jar is full. When it comes to the Save jar, younger kids may need a relatively short save goal. You might even want to tape a picture of what they want on the jar itself.
Up the Ante
As your kids age, give them more allowance and more responsibility when it comes to handling money—you can swap the jar system out for real bank accounts. Somewhere around ages 10 to 12, you can also try setting a clothing budget, depending on what you are willing to pay for each category: shoes, underwear, coats, etc. Let your kids know these numbers, then hand over the entire budget in a lump sum. You can do the same for things like athletic equipment and art supplies too. Then step back and let them succeed or fail. No bailouts. These are lessons that are better learned now than when they are creating their credit score.