Before introducing the concept of an allowance to your child, they should have an understanding of the choices they have for money: save, spend, donate and invest.  Here are some important things to consider and concrete suggestions on how to help get started before you start an allowance with them.

Before they begin to manage an allowance, children first need to understand the money choices they have. Many children will think first of “spend” and only spend.  Take some extra time to review all the choices they have each and every time they have money to work with.  This reminder will help them to build a good financial habit to stop and consider those choices before deciding what to do with the money.  Kids learn best when using a hands-on visual tool to work and play with to remind them of their money choices. That’s why, after several years of teaching kids about money in and out of the classroom, we developed two tools to help adults teach kids about money.

Money Choice Visuals

After working for years with elementary children in the classroom, I invented the Money Savvy Pig bank.  It was designed to help teach money choice to kids between the ages four to eleven. The Money Savvy Pig is a piggy bank that has four sections: save, spend, donate and invest. It is designed as a translucent bank so kids can see the inside and watch the money accumulate. It comes with a guide to help parents teach children how to set goals and make meaningful financial decisions as well as goal-setting stickers to remind children what their money goals are. For preteens and teens, we created the Cash Cache Beginning Personal Finance Organizer.  It is based on the same visual approach as the Money Savvy Pig bank, but it is a binder with four see-through colored pockets – one for each money choice. The handbook included with this money tool provides templates for setting goals and managing budgets and covers all four money choices as well as checking, credit and budgeting. (More information can be found at

Ok, now, back to allowance. First, to recap, middle school is the best time to introduce allowance. In middle school, your child can easily manage one months worth of expenses. Sit down at the kitchen table with your child after dinner tonight and agree on three expenses he or she wants to manage. This list should be unique and specifically tailored to your child. The expenses should be things they really want to control like clothing purchases and possibly lunch at school. Once the list is created, estimate what you spend per month on these items. Then, hand over that amount and the responsibility for the expense. Now comes the allowance contract. Spell everything out in writing. Both of you should sign on the dotted line before any money changes hands. Remind your child to keep all receipts. Make this a requirement for the next months payout. This is another chance to stop and think about money. The dollars are significant when you’re talking about covering an entire month. Many parents are not sure about giving their kids that much cash. (My own father called to check on my sanity when he read that I give my girls $80 a month for allowance.) I assured him that giving the girls $70 for clothing and accessories expenses saves me money (not to mention that I no longer have to say no all the time) and helps them prioritize.

Here is a sample allowance contract to help you get started:

You may wonder if it makes sense to start your younger child on an allowance at the same time you are doing this with your older child. The answer is NO. This will dilute the importance of this rite of passage for your older child. The older child has earned the privilege. The younger child needs to wait — and watch, listen and learn.

I am still not done with allowance. Next time I want to look more closely at how you can use allowance to teach your children how to budget and also address the common question of should I pay my child money for chores.

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Written by Susan Beacham
Susan Beacham founded Money Savvy Generation in 1999 after almost two decades in private banking and investment management complemented by considerable time teaching at the elementary level.

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