How to Use an Allowance to Teach Your Kids About Money
For many kids, receiving an allowance is a rite of passage. It's their first introduction to money and their first taste of financial autonomy. But research shows that an allowance is something more than a milestone — it's a financial education tool with lifelong benefits.1
The sooner you start instilling financial lessons in the minds of your children, the better. One study showed that kids can grasp basic money management concepts by age 3, and many money habits are set by age 7. 2
Here are some ways to get your kids on the right financial path by giving them an allowance — and teaching them how to manage it.
Make the chore or no-chores decision
Family finance experts can't seem to agree on whether allowances should be contingent upon chores or unconditional. On one hand, giving kids money they haven't earned through chores might make them feel entitled to money and learn less from the whole experience.3 On the other hand, if the child's allowance is dependent on cleaning the bathroom, they may choose leaving the toilet germy over this week's cash — and there goes the money management lessons. Researchers have also found tying money to tasks can disconnect chores from their responsibility to the family and create conflict between some parents and kids.
In short, every kid and every family is different. Only you can decide what type of allowance structure will work best for your family and position your child to learn how to manage money.
Tip: One way to motivate kids to save money is to match their savings.
Setup spending, saving, and giving jars
Handing kids money isn't enough to teach them lifelong financial lessons. Their allowance should be paired with management lessons. Many experts suggest parents set up their kids with three jars, piggy banks, or the like labeled with the primary financial functions: saving, spending, and giving.
- Spending tips: Having one stash of cash that's subject to their decisions only — barring anything illegal or against the family rules — is both fun for kids and a big learning opportunity. They may only blow their funds at the candy store a couple of times before deciding that saving some comes in handy when their friends invite them to the movies.
- Saving tips: Help kids understand what saving money can help them achieve. Walk kids through sort of high-value things they may want to save up for, from video games to a new bike. Teach them the math to show how saving two more dollars per week could get them riding that bike six months sooner. You can also motivate savings by matching their savings on an annual or quarterly basis.
- Giving tips: Setting aside money for giving teaches kids one of money's greatest powers: to make a difference.4 Have your kids set aside giving money each week, and then introduce them to some causes or charities that fit their interests. Help them learn exactly what their money will fund — how many bowls of soup or pet vaccinations, for example — and they'll start to feel really good about giving.5
Grow money lessons with age
It's important to structure kids' allowance according to their developmental phase. While every kid develops differently, here are some allowance practices kids are generally ready for at different ages.
- Preschoolers: Play grocery store with play money. Provide kids with a few alternatives and ask them to choose, like foods or clothes. Allow kids to pay for one item at a store.
- Early Elementary: Open a savings account and explain interest. Teach them how to compare prices. Use their spending money to discuss wants and needs.
- Middle Elementary: Help kids set savings goals. Allow them to earn extra cash by doing chores above their normal family contributions.
- Early Teens: Open a checking account for your kids and encourage them to earn money through their business ideas. Teach them about saving money for emergencies.
- Middle/Late Teens: Let kids do grocery shopping. Potentially replace their allowance with a job. Involve kids in planning for their big needs, like college education or a car.
When you're ready to open a saving account for your kids, Synovus is here to help with savings accounts for minors that have no minimum balance or monthly fees,6 as well as guidance from bankers who may be parents too.
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This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Sharon M. Danes, Ph.D. "Teaching Children Money Habits for Life," University of Minnesota Extension, accessed August 19, 2019. Back
- Beth Koblinerg, "Money Habits Are Set by Age 7," PBS.org, published April 5, 2018. Accessed August 19, 2019. Back
- Eavan Thomas, "The effects of childhood allowances on adult financial capabilities," University of North GeorgiaNighthawks Open Institutional Repository, published Spring 2017. Accessed August 19, 2019. Back
- Nicole Spector, "How to teach young kids about money so it sticks with them," NBC.com, published June 27, 2019. Accessed August 19, 2019. Back
- S.Q. Park, et al., "A neural link between generosity and happiness," Nat. Commun, published online July 11, 2017. Accessed August 22, 2019. Back
- All accounts are subject to approval. See the schedule of fees and charges for personal accounts. Back
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