Kids don’t learn how to swim from the pool deck. They have to get in the water: first the shallow-end, then the deep-end. It’s no different with money. Managing money requires personal experience, decision making, and lots of practice. Yet we parent’s are so reluctant to let our kids practice with real money. What a waste we think! But it’s better our kids learn from their little “mistakes” today - when dollar amounts and consequences are low - than much larger ones later. Truth is, when kids spend their own money and not ours, they get thoughtful – and fast.

My kids’ personalities amaze me: they hear the same lectures, go to the same schools, eat the same mac and cheese, but their money styles couldn’t be more different! Of the older three kids, one is a spender, the second a saver, and the third can’t wait to give her money away. Is one better than the other? Not really. While we all want to raise a saver, saving to the point of hoarding is just not healthy. A focus on money for its own sake makes us small and petty. Of course, it’s not good to overspend or to be completely selfless either. Responsible money management requires balance and a respect for money. Here’s a solution: allot a portion of every dollar your child earns to three jars: one for saving, the other two for spending and sharing. Emphasize your family’s unique financial values with the allocations you choose: for example, 50% to the save jar, 40% to the spend jar, and 10% to the share jar. This, of course, can be implemented on ThreeJars.com in a very easy and manageable way for both parents and kids. As your children get older and healthy patterns have been established, increase the spend allocation to teach budgeting. Your kids will thank you in the long-run.

I don’t know if there is anything more difficult as a parent than consistency. When it comes to allowance – it’s doubly important. How can we ask our kids to be consistently responsible with money when we can’t even be consistent with its payment? Three dollars may seem trite to an adult, but to a young child, it’s their source of independent income! If we want our kids to have better money habits, we must give allowance the proper respect and attention it deserves.

Consider the age of your child, your expectations of what the allowance will be used for, and what your family budget can afford. Before high school, kids are often paid their age or ½ their age in dollars per week. But don’t focus too much on amount though. Even very small allowances, paid consistently over time, add up to more than our kids could imagine. In fact, that’s the real secret to easy riches: to consistently set-aside small amounts of money over a very long period of time, ideally in safe, tax deferred investments. If it’s so easy, why isn’t everyone rich? Because few learned healthy financial habits when they were most open to learning them - at a young age. Studies show kids are more responsive to financial concepts in grade school, before negative habits have taken root and peer pressure is strong. So the right answer to how much allowance is … something - really.

Should Allowance be Tied to Chores

Of the thirteen million families in America that pay allowance, roughly half believe allowance should be tied to chores. The thinking goes: kids need to earn their allowance because that’s how real life works. No free lunch! The other half believe, that since mom and dad don’t get paid for all the chores they do, why should the kids? In my mind, we are doing our kids - and eventually ourselves - a disservice by connecting the two. Allowance and chores are two completely separate issues. When it comes to chores tell the kids everybody has to help out – it’s a family rule. Whoever lives in the house has to help manage the home. In our household, we do not use money to ensure beds are made and the trash is taken out. Losing TV, internet, or cell phone privileges is much more effective. Remember, the role of allowance is to help our kids develop the skills they need to responsibly use money and comfortably respect it, before leaving the family nest. Practicing money is too important an issue on its own to gum-up with chores.