Money Management for Children

My nine-year-old just stepped in to tell me about her dream last night.  “I had TWO THOUSAND AND THREE HUNDRED DOLLARS,” she gleamed.  By the look on her face, you’d have thought she had won the lottery. 

It was at this point that I got that nagging feeling again.  Like most parents, my husband and I are always trying to use any given opportunity to serve as a lesson in “money management”.  However, our daughter has her own ideas about how “her” money should be spent.  One of my first thoughts after hearing her dream was, “Baby, you’ll have it spent in two days!”  So, once again, I am left pondering some of the ideas that have (and have not) worked for others.

1. Allowance – This is the big one.  I have not seen, heard, or read any expert advice telling parents that children should have to earn what they make.  The information I’m finding on giving an allowance states the importance of giving a child an alloted amount of money so that he/she will learn to budget.  My husband and I have struggled with this, as we both believe that it is important that children understand that money is earned. 
2. Spend/Save – Many people, regardless of the allowance rule, have set rules on how money will be allocated once the child receives it.  For instance, some parents have a rule that 50% can be used as the child chooses, and the other 50% will be put into savings of some sort.  Of course, the rules and percentages vary.
3. Behavior counts – Some folks combine the responsibility of smart spending with behavioral expectations.  An example would be…A child receives $10 per week.  But for each unacceptable behavior, a portion of that money is taken away. 
4. When it’s gone…It’s gone – Well, this is self-explanatory.  The child is allowed to spend what he or she wants, but when the money is gone, no exceptions are made. 

Our daughter has just started to really understand the value of the dollar, mostly, I believe from seeing and hearing the ups and downs of our own financial decisions.  I don’t believe there is one way alone to encourage a child to make good financial decisions.  Knowing your child, knowing their habits, and knowing what works for your own family is crucial in deciding which “financial plan” is best for you.