Sit down with your children and help them draw up a spending plan for their allowance. Explain to them what you will pay for (school supplies, clothes, etc.) and what they will need to use their allowance for (video games, going to the movies, etc.). Encourage them to save a certain percentage, such as 10 percent, of their allowance each time.
Try opening a savings account at a local bank. Many banks will open savings accounts with little or no initial investment, and this will give your child the opportunity to understand how an account works. Provide a place for the child to keep the rest of his or her money (a special envelope, box, or a piggy bank).
Helping children learn to live with their spending decisions is another benefit of giving them an allowance. Children need to learn to think through their purchasing decisions and then assess whether it was a good decision or not. Allowances can provide a sense of ownership and responsibility and an opportunity to learn from mistakes.
Children will not automatically learn good saving and spending patterns by simply receiving an allowance. Have regular meetings with your children to discuss sound financial behaviors.
A useful resource for helping children with their decisions is at: http://www.extension.umn.edu/distribution/youthdevelopment/DA6117.html .
We would like your feedback on this Personal Finance Frequently Asked Question.
