Kids allowance

If you have children, you’d want them to be savvy using money. Allowance can be used to teach them about the meaning of the money and how to use it properly.

First thing about allowance is the question of when to start. While some recommend a certain age, my suggestion is to start with allowance when kids get interested in money – out of this interest comes motivation to start learning about money. As kids are different some might start very early, but for some it might be only appropriate when they are about ten years old.

What to do with allowance? If you kids are anything like ours their choice would be sweets and toys.. but to learn about it and use it in a way towards their own financial independence, my suggestion would be The 3 jars method. You divide money received into 3 ways: one for spending (yeah, sweets!), one for saving and one for giving/sharing.

The spending part should be left at kids disposal, but you have control over it with how much kids receive on this account.

The saving part can be used for some bigger set goals (e.g. buying a bike) or long-term saving. The point of the saving part is to learn not to spend all you have immediately, to learn to plan and to build a habbit of saving. To amplify saving habits you could add interests periodically as an additional reward, but also true to real life with interest on savings or dividends from capital.

The giving part is of course intended for kids to learn about sharing and caring. This should be based on yours and your children values and chosen together. One way to do it is for example to use this money for gifts for friends, e.g. birthday gifts, etc.

And lastly what should be the sum of the allowance? Based on the above you can make an estimate what kids need for the 3 parts and how often. The allowance would be the sum of it and provided at periods that fit the goals. Again an example, kids could get the allowance based on how many years they are old (and multiplied accordingly) and the period for that sum to be provided can be weekly or monthly.