Raising money-smart kids

Teaching kids how to spend and save money is an important part of helping them grow up to be financially confident. Even though two-thirds of kids receive an allowance, most of them aren’t learning how to save money. How can you use allowances to teach your kids financial literacy? Here are seven tips to get the most out of allowances:

1. Talk about allowances regularly

If money just shows up in your kids’ accounts every week, you’re missing out on a teaching opportunity. Set clear expectations about what expenses their allowance should cover and encourage regular saving. Reflect on past purchases with your child to help them understand their spending habits and make more informed decisions in the future.

2. Pay an age-appropriate allowance

A good rule of thumb is to pay $.50 per year of age in a weekly allowance, so a 10 year old might receive $5 per week. An appropriate allowance will vary from child to child depending on the expenses they’re responsible for. Make sure the allowance is also large enough to allow kids to set money aside for savings and charitable giving.

3. Allow mistakes

‍ Autonomy is a critical component of learning to be financially self-sufficient, so the money should be theirs to use. As hard as it is to see your kids make mistakes, giving them space to make small ones now can help them avoid making big ones later.

4. Subsidize good choices

Consider matching contributions for the kind of behavior you want to encourage. For example, some parents may pay for the rest of a LEGO set once their kid has saved up half. This teaches them to delay gratification and save for a bigger, more significant purchases, rather than immediately spending all their allowance on something like candy.‍

5. Keep separate from regular chores

Research shows that kids who do unpaid work around the house are happier and have improved self-worth, but making allowances contingent on chores can put that at risk. If kids decide they don’t want to do chores and forgo their allowance, and parents require them to do their chores anyway, this can leave kids feeling that the allowance is a control mechanism rather than a teaching tool. This can harm both the chore and allowance programs, and also cause fights.‍

6. Give opportunities for extra earning

If you have work around the house that your kids can do beyond what is regularly expected, consider paying them! Extra money for extra effort is a great way to encourage initiative.‍

7. Avoid paying advances

Some parents will occasionally pay allowance in advance but charge enough interest to make it hurt. Tempting as it may be, borrowing against future earnings sends a bad message, and can create bad habits.

References:‍

• ‍https://kidnexions.com/pdf/MotivationTheoryAppliedtotheAllowance.pdf ‍
• http://greatergood.berkeley.edu/article/item/all_in_the_family/‍
• https://www.sciencedirect.com/science/article/abs/pii/S0191886909005145
• ‍https://www.aicpa-cima.com/news/article/childrens-allowance-pay-is-up-amount-saved-alarmingly-low

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About Crew

Crew is a banking app for families. Crew provides high interest joint accounts for parents and kids, and supports allowances and safe spending for kids. Learn more at trycrew.com.