In today’s society, it is more important than ever to help our kids understand the value of money and the “ins and outs” of cash flow. Some of the most successful teaching methods incorporates principled lessons, hands-on activity and most importantly, fun! If you’re thinking of giving your children an allowance or have already started, the following ideas may help them understand fundamental elements that will help them be financially independent.
Step 1 – The value of a dollar
While there’s no right way to determine if, or how much, of an allowance should be given, a good starting point would be to give a dollar amount equivalent to the child’s age. For example, if your child is 7, then a weekly amount of $7 would be their allowance. This allowance could be freely given or tied to chores or various activities around the house. If you would like to encourage some entrepreneurial spirit, you could also increase their weekly amount based upon pre-determined additional chores or activities your children might take on to earn extra money.
Step 2 – Goal setting and budgeting
A fun and creative way to teach your children about goal setting and budgeting is to give them ideas on how to divide their hard earned money between short term and long term goals. We recommend the following breakdown:
10% goes to charity
15% is set aside for long term investments (car, education, house)
25% is set aside for short term savings (new video game, hockey stick, etc.)
50% is to be spent on whatever they like, whenever they like
You could use 4 different containers for each category to help your kids physically divide their allowance. This will further reinforce the ideas of budgeting, goal setting and paying yourself first. They could even decorate each container!