How to Teach Budgeting With an Allowance
Talking to kids about money can be a challenging topic. However, it is important to start young to help them get a handle on healthy finances throughout life. An allowance introduces your child to good budgeting habits. Your child's allowance is his first introduction to budgeting, making wise purchasing decisions, saving, giving to charity and even investing, writes Neale Godfrey, author of "Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children," notes that
Instructions
Give an allowance that is equivalent to your child's age per week. For example, a 4-year-old child would be given a weekly allowance of $4, and a 10-year old child, $10 per week. Or if you want your child to earn his allowance, you might base the amount on homework and chores completed, suggests Godfrey. Teach your child to divide his weekly or monthly allowance into three parts. He can save a third, spend a third and give a third to a charity or cause of his choice. Help your child divide the amount equally. Make separate budgeting jars for your child's allowance. Label the first "savings," the second, "spending money," and the third, "charity." Your child can use the jars to divide and store his allowance until it is needed. Open a bank account for older children. This helps them learn budgeting discipline by putting all or part of their allowance into a savings account. It is also an early introduction to bank fees and compounded interest. Instruct children to keep a balance sheet to keep track of how much allowance income they have, how much they have saved and how much they have spent. The balance sheet should show what they have spent their money on. Encourage your child to save for some of the toys or items he wants, instead of just buying all items for him. Help him calculate how many weeks of allowance he must save to buy something. This helps your child see the value of his items and take care of them better.
