The Checkout

Teaching Your Kids About Money

Consumer banking site bankrate.com yesterday delved into a topic that totally fascinates me: When to start giving an allowance and how much.

I'm obsessed with the topic because I never had really got an allowance. Nor did I have assigned chores. I'd always heard other kids talk about both things, but I could never really contribute to the conversation.

Don't get me wrong. I did housework. I learned my way around a kitchen making dinner for my family nearly every night when I was in high school. And my parents gave me money for lunch every day. But the two were never linked. And when I went to college, my folks just assumed I would handle my daily financial business on my own without bothering them and I did.

Financial experts, however, would probably argue that letting your kid start to manage money for the first time at age 17 without much prior experience is probably a recipe for disaster. In fact, the experts Bankrate spoke to said parents often wait too long to start doling out the dinero:

The first mistake most parents make is starting too late. The majority of parents wait until their children are tweens (9 to 12 years old) and they miss out on the opportunity to discuss money with young children who are more apt to listen to, and take, their parent's advice. By the time kids are teenagers, they have additional influences on their spending habits, including friends, advertisements, pop culture and the media.

According to Bankrate, as soon as your child begins to express a sincere interest in material wants, it's time for an allowance. We're talking ages 3 through 5.

The preschool set, of course, gets minimal amounts because, let's face it, they could just as easily drop it on the ground as spend it. But by kindergarten and first grade, most kids grasp the differences between spending, short-term savings, long-term savings and donating. By letting them sort their money into those four categories, they can learn responsible money management skills.

The money battles I dread are the middle and high school years when the label on the backside of a pair of jeans suddenly means more than life itself. (Of course, those jeans never seem to cost less than $100.) Bankrate recommends parents hand over a twice yearly chunk of change for clothes--and no more--and to let the kids spend it as they see fit--with a little tough love thrown in. So, if they neglect to buy a new winter coat, it's on them.

Finally, it turns out my parents might have been right not to pay me for specific chores. Aletha Solter, a developmental psychologist told Bankrate that by keeping allowance and chores separate, children are more likely "to learn the value of cooperation and experience what it feels like to contribute to the family."

Hmm. We'll have to hear some real-life examples to evaluate that last one. Let me have it. I want to know how you handle the mix of kids and money. Is it a tug-of-war? A delicate negotiation? Is there copious whining involved? And how do you let your kid run around in an old winter coat even if its his fault he doesn't have one? (You can tell already that I'm a doormat.)

By Annys Shin |  February 7, 2007; 10:00 AM ET Consumer Tips
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Comments

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My daughter helped me to get where I am today. What is mine is hers. When she needs money, I give it to her. When she wants money, I give it to her. She always gets what she needs first, then if there is money left over, she gets what she wants. I have never had a problem with her and money.

She is 15 and she just started working (by her own choice). She is learning how to manage money that way. Not at 5 or 6 years old, which is just crazy.

Posted by: Steve | February 7, 2007 12:49 PM

I started getting allowance when I was in kindergarten or first grade. It wasn't much. Anyhow, money-management skills must be genetic, because just like my dad, I saved every penny. My dad took me to the bank when I was 7 or 8 to open my first savings account. I still have that money to this day.

Posted by: Anonymous | February 7, 2007 5:52 PM

I didn't receive an allowance as a kid, and I wished I had. I was the type who HATED to ask for money to go to the movies, whatever. A control freak early on!

When the "I wants" from my 5 year old became too much I started giving her an allowance of $1 a week. She has basic chores but she doesn't 'earn' it, although she can 'lose' it - but mostly at this point for bad behavior / tantrums.

She has a piggy bank with 4 slots: spend, save, invest, donate. Sadly the altruism of donating hasn't really set in with her... but she does get the saving part. I'm thinking of buying her a share of Disney stock or something else familiar for a birthday to help learning about investing.

Now when she asks for something at Target, I can almost always say yes... if you have the money. And when she pressured me for a scone at starbucks the first week of the allowance I told her she could have one (she always just licks off the icing!) if she bought it with her money. Her response - "No, I won't waste it on that".

I think everyone has a 'money personality' and so one plan doesn't fit all (as with all advice for raising children!) But I think it's part of understanding how the family works $ wise and learning to independently manage wants vs needs and delayed gratification... before the teenage / college years make everything even more complicated.

Posted by: Bonnie | February 8, 2007 9:18 AM

I really liked how my parents arranged allowances - we started with a nickel and two pennies at a young age (inspired by a Frances book) and got raises at birthdays and the start of the school year. Clothes and necessities were paid for by parents, all luxuries were to be covered by the allowance. Mine always went straight to books - my brother saved for months to buy a Sega. We always had a savings account and knew what it was for (mostly college, but short-term savings as well), and we were encouraged but not forced to give money to charity. They probably lucked out that both of us were oblivious to fashion. I like the fact that they could make sure we were suitably taken care of while still letting us learn the value of our money to buy what we wanted.

Posted by: SPC | February 8, 2007 9:22 AM

Oh yeah, and chores were a family requirement only slightly linked to allowance. We got docked a nickel for every sock that made it into the laundry wadded up. We could also earn extra money by requesting extra chores (usually pulling weeds, paid by the bag).

Posted by: SPC | February 8, 2007 9:24 AM

My 11-year-old daughter got a clothing budget starting last year, and it is certainly opening her eyes to the relative prices of different brands, stores, etc. She can add money of her own if she wants, and can keep money she doesn't spend.

As far as the "winter coat" goes: the agreement is that my wife will buy certain items for her (including winter coat at end-of-season sales and clothes for certain special occasions). Our daughter is in charge of the everyday clothes, however. She was THRILLED when a family friend offered several bags of nice hand-me-downs!

Posted by: yotommy | February 8, 2007 9:44 AM

Who are these nuts who say you should give your kid six months of clothing expensein advance? Do they even have kids? They sound like the folks who think we should give kids credit cards. Early on (like immediately after her birth) I started buying all of my daughter's clothing from the mark-down rack at my favorite discount store. She is now 14 and knows that she can't try on anything that isn't already marked down, let alone ask me to buy it. Hand-me-downs are a big hit too. This year was the first time EVER that we had to buy her a winter coat. Shoes are another thing entirely as she has narrow feet (like mine) and we have to go to a real shoe store where there are professionals who can measure her feet and recommend the one model of sneakers that just might actually fit. Oh, yes she and her HS gal pals figured out they could get their homecoming finery at a second-hand store: seven fancy dresses, three pairs of heels, total bill less than $120. She gets $20 a month as allowance to spend on whatever books, lattes, eye-liner, or other knick-knacks she wants. Right now she's saving for an Ipod and hasn't spent a cent of her allowance in months. Take heart Annys, your kids will probably learn your own penny-pinching ways if you give them half a chance.

Posted by: cotopaxi | February 8, 2007 2:40 PM

Who are these nuts who say you should give your kid six months of clothing expensein advance? Do they even have kids? They sound like the folks who think we should give kids credit cards. Early on (like immediately after her birth) I started buying all of my daughter's clothing from the mark-down rack at my favorite discount store. She is now 14 and knows that she can't try on anything that isn't already marked down, let alone ask me to buy it. Hand-me-downs are a big hit too. This year was the first time EVER that we had to buy her a winter coat. Shoes are another thing entirely as she has narrow feet (like mine) and we have to go to a real shoe store where there are professionals who can measure her feet and recommend the one model of sneakers that just might actually fit. Oh, yes she and her HS gal pals figured out they could get their homecoming finery at a second-hand store: seven fancy dresses, three pairs of heels, total bill less than $120. She gets $20 a month as allowance to spend on whatever books, lattes, eye-liner, or other knick-knacks she wants. Right now she's saving for an Ipod and hasn't spent a cent of her allowance in months. Take heart Annys, your kids will probably learn your own penny-pinching ways if you give them half a chance.

Posted by: cotopaxi | February 8, 2007 2:41 PM

Hey cotopaxi. Not all kids are like yours. What worked for yours may not work for someone else's.

That's why being a parent is so hard. You constantly have to figure out how to impart the values you want to impart in a way that works for your family and your kids. There is never a "right" way to do a particular thing that works in all situations.

By the way, let me know what happens when your kids, who never had credit cards as teens, go off to college and get bombarded with credit card offers. Perhaps they'll turn out fine.

On the other hand, one of my college roommates got himself thousands of dollars into credit card debt buying, among other essentials, aftermarket modifications to his leased Volkswagen Beetle.

Heh heh heh.

Posted by: Bob | February 8, 2007 4:48 PM

I started babysitting when I was 12 and working in an ice cream parlor when I was 14, so I never really had much of an allowance when I was younger. My parents did buy me "important" things like winter coats, Christmas/Easter dresses, etc., and I got taken shopping once a year on my birthday by my father. Other than that, if I wanted something, I had to use my own money. Of course, they did give me lunch money for school! (I can't imagine making my child go without a winter coat if she didn't save for one!)

Even though I started working at a very young age, college and credit cards still took me some time to figure out.

I'm sorry, I'm just not for the deprival-method of teaching your children fiscal responsibility. I only have a 2 year old, though!

Posted by: PLS | February 9, 2007 2:45 PM

Recommend reading Piggy Banks to Credit Cards...can't remember the author. Full of great advice for alllowances, etc. for the 6 to 18 year old. The author suggests young kids (mine were 5 when we started) need enough allowance to be able to actually purchase something...in order to see the immediate relevance of money. We started out at 1.25 with the 25 going into a piggy bank for savings and made a lot of visits to the dollar store, local thrift shop, and the gumball/toy machines in the grocery store. Our kids quickly caught on to the value of money and even the exact value of coins, etc. They even figured out the concept of saving one week's allowance to combine it with the next week's on their own.

We presented the concept of an allowance as something you get for being a contributing member of the family...for doing a requested job without whining, etc. - so there is a link but it's flexible. I'm too lazy to stick to a predetermined job list and honestly I don't need my son taking out the trash every time...sometimes it's more convenient for me to do it. But he better not whine when asked.

The author also recommends beginning the whole process with just minimal savings, then in a few years introducing banks, long term savings, etc., then in another few years investing, etc. - all based on a child's maturity, etc. Great book, highly recommend...and no, I'm not related to the author or receiving any financial compensation for comments.

Posted by: Magda | February 13, 2007 1:15 PM

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