Money management is best learned early – when mistakes cost less.
When it comes to a kid’s weekly allowance there’s just one thing that matters, according to Hollis Harman, an Emmy award-winning financial literacy expert and author of Money Sense for Kids. To teach your child the money-saving techniques you hope will become as habitual as teeth-brushing. Or in the case of my 9-year old, much more habitual.
Here are five steps:
1) Chores or no chores? Parents wonder whether allowances should be tied to chores and experts are busy arguing both sides. Some say kids should link pay and hard work. Others say an allowance’s goal is strictly to teach money-management skills. Harman says to stop debating, pick a side, and start handing dollars – or cents – to your kids. “If you want your child to do chores go ahead and give them chores,” she says. “If not, just give them a set amount of money each week.”
2) How much? That’s simple, says Harman. Give them the only what makes you comfortable. Create your own scale – a dollar for each year they’ve been alive, though 50 cents also works well. While you’re at it, look at some child-related expenses and consider which you might put in your kids’ hands. School lunches? Art classes? Weekend entertainment? Rather than pay the movie theater – or school cafeteria – directly, pay your child and have her foot those bills.
3) Age appropriate? Whatever age your child is now. And if he’s over two-years-old, well, you’re late, says Harman, so get going.
4) The lesson? Both kids in car seats and those learning to drive – not to mention all ages in between – know red means ‘stop,’ says Harman, yellow means ‘caution’ and green means ‘go.’ Apply that to allowances by providing them with three cans. The red one is for saving 10 percent of every dollar they earn. The yellow one is for holding expenses that are every expected – holiday gifts, a sister’s – hahahaha, kidding – best friend’s birthday, or those Nike sneakers that absolutely everyone has. Put in there 20 percent of the cash. The rest can go into the green jar – spend it on lunches and remember, sometimes that yellow jar will require more money.
5) Your commitment? We gotta set an example, guys, and also save a portion of what we earn.
6) The goal? To make 5-cent mistakes or even 5-dollar doozies, says Harman. Because learning today can help prevent the $5,000 credit card catastrophes in college.
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