Raising Money-Smart Kids: Allowance and Savings

Find yourself digging out of a small mound of debt? Haven't balanced your checkbook in months? A budget-- what's that? Just because we parents have hit a few bumps on the road to financial security doesn't mean our kids are condemned to repeat our mistakes. With a little planning, we can teach our kids some money smarts...and maybe even learn a few new tricks ourselves.

Allowance Essentials

In order to learn how to use money, kids need to have some. Allowance remains the best teaching tool, says Jayne Pearl, author of Kids and Money (Bloomberg Press, 1999) and financial columnist for Oxygen.com.

At what age?

"It can be started quite young in a very modest way," says Pearl, citing age six or seven as a common starting point.

Before receiving an allowance, kids should...

• be able to count, add, and subtract
• be familiar with the different coins and bills
• show interest in money or spending

Should allowance be linked to chores?

No, says Pearl, along with other experts. Tying allowance to chores can lead to power struggles and take away the incentive for helping out the family with no reward. ("Sure, I'll help bring in the groceries...if you give me a dollar.") It also reinforces discrimination since women don't get paid for doing chores. "Children (and fathers too) should have to contribute to household chores just because they are part of the family," says Pearl. Instead of money, parents can tie chores to other consequences: "When my son doesn't do his chores because he doesn't feel like it, I might not feel like taking him to soccer practice," says Pearl. However, kids can be paid for extra tasks that you might otherwise pay someone else to do, like washing the car.