One of the best ways to ensure your children grow up financially fit is to give them practice at managing money. And one of the tools parents use is an allowance. But how should you handle an allowance? Here are three suggestions:
Decide the amount. Figure out how much you will pay your children and when (every week, biweekly, monthly). And then let your child know what he or she will pay for with the allowance. You might decide to pay for needs such as school supplies or sports equipment, while they can use the allowance for “fun” items like toys or going to the movies.
Use it as a teaching tool. Provide jars or envelopes that say “Save”, “Spend”, and “Give”. Show them how to divide their money so they can save some of it, give away some of it (to a local charity, for example), and spend what is left. You could teach your children the value of budgeting by not giving them more money once they have used up all their allowance.
Introduce them to financial products. Deposit their allowance into a youth savings account and help them manage it wisely. Some financial institutions offer youth savings accounts as well as workshops or classes. To encourage savings, tell your children for every $1 they set aside for long-term goals, you’ll match it in a youth savings account. Share the statements with them so they can see their money grow.