1. Start Them Early
It is too late to start teaching your children about money when you send them off to college. Give kids an allowance starting around first grade when they begin to comprehend abstract concepts. More spending money is not why kids should get an allowance. Use a child's allowance as an important training tool to learn self control amid the barrage of marketing they experience their entire lives. How much kids' allowances should be is a parenting decision but experts recommend starting with an amount half the child's age.
2. Learning Not Earning Power
Experts recommend not tying discipline methods and chores to an allowance for kids. The purpose is to allow them to make mistakes in a safe environment. When a child begins spending his own money, he will become aware of how much things cost in comparison to how much he has. Now the fun begins. Don't muddle the learning process by withholding allowance or requiring chores to earn the money. Reserve allowances for teaching a child about consequences of impulsive buying and the intrinsic reward of saving for a better item. Try not to voice your judgment about choices but allow your child to learn for himself.
3. Saving for a Rainy Day
Your child should quickly understand that saving an allowance gives him more spending power. When your child is ready, teach him about interest. Set up two separate jars or envelopes, one for spending and one for savings. Tell your child that every month you will add a percentage to the amount in the savings envelope. In junior high and high school, evolve the exercise into showing your child how to compute compound interest. Explain the importance of putting money aside for emergencies. The more your child learns about how to use money to be self sufficient the better prepared she will be when she has a family of her own.
4. Do What I Say, Not What I Do
The best way to teach your child how to use her allowance is by modeling good spending and saving habits. You do not have to discuss the details of your personal finances, but show your child you are conscious of comparing prices and making good decisions. Being a parent means living within your means, not only to protect your family's well being but also to teach your child the responsibility money requires.
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