Teaching Your Children How to Save
In many families, money is a taboo topic that is not to be discussed with the children. Unfortunately this results in many children growing up without learning the basics of personal finance until they have experienced a few hard lessons.
In an effort to educate our kids about personal finance and the importance of saving money, we have implemented an allowance system. The guidelines of our allowance system are as follows:
- Determine a reasonable amount and payout schedule. We opted for a weekly allowance schedule with an amount that is equal to $0.50 for each year of age. As an example, a 10 year old child would receive a weekly allowance of $5.00.
- Each child has a budget for their allowance with the following categories: spending money, savings and charity. Feel free to experiment with the breakdown of each category but we have been happy with 60% towards spending money, 30% towards savings and 10% towards charity.
- Define responsibilities and expectations. Many parents prefer to pay an allowance as a reward for their child performing certain chores. In our family, we have not related the allowance to any chores. Our children have certain responsibilities and chores that are expected of them as a member of the family and their allowance is not earned in a traditional sense.
- Allow for the freedom of choice. Within each category, it is important that your children be given the freedom and flexibility to do as they wish with their money. Allow them to spend their money on what they want (assuming it is within the confines of any family rules) and allow them to select a charity of their choice. With this power of choice, your child will learn a level of responsibility for their money and they will make mistakes with their money but that is part of the learning process.
With these basic guidelines, you will have an allowance system in place for your children that will help introduce them to the concept of saving money, spending money wisely and donating money to those in need.
The real reward as a parent will come as you begin to see your children learn about personal finance and make choices that may surprise you, such as giving a little extra to charity here and there or sharing money with a sibling that is saving for a big purchase.