How parents can help their children develop smart money management habits from a young age

Determining your family’s philosophy around allowance amounts and methods can be quite tricky.

  1. What should an allowance be used for? Be clear about what you expect your child to pay for – this is a great lesson in needs versus wants! Be sure to include items that reflect your family’s values, such as savings accounts or charitable giving.
  2. How much allowance should my child receive? “One dollar per year of life, per week” is a common formula, but the reality is that many families simply cannot afford this amount. A better way to figure the amount of an allowance is to determine the cost of the items you’ve decided your child should pay for.
  3. For what behaviors should my child receive an allowance? None! Making allowances a reward for good grades or getting chores done sets up a parent to deal with a kid who’s decided to forgo chores (and allowance) for sleeping in, or one who demands payment for every deed performed, no matter how small. Neither are habits a parent wants to instill.

Giving children an allowance provides a safe micro-environment in which they can explore their personal financial values, where the consequences of mistakes are relatively minimal.

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