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Tips to Teach Kids About Money Management—and Responsibility

When I was young, my parents set up an allowance for me—and taught me a valuable lesson about money management. They told me I would get a weekly allowance and then they explained the rules. Of course, I didn’t focus on the rules—I was overjoyed just at having money that I could spend any way that I wanted!

That same week, we went to the carnival as a family. I had a great time and spent my entire allowance on all sorts off exciting things. I didn’t give it a second thought because the money was mine to spend any way I chose. However, the following Monday morning I realized I had a problem—one of those pesky rules. I was supposed to use my allowance to pay for my lunch at school.

I went to my Dad and asked him what I was going to do for lunch. He replied, “Go over to your pay envelope and get your lunch money out.” I told him it was all gone. With genuine empathy he said, “Oh no, that’s really too bad. What are you going to do about that?” I replied, “I don’t know, can I get some food out of the refrigerator and make a lunch?” He said, “Sure, if you can afford to pay for it. Mom and I have already paid you for lunches once, and we don’t want to pay for them again.”

That week was tough for me at school because I had to skip lunch and only had two meals a day. Even though my parents made sure that there was plenty of food at those two meals, I learned a big lesson in money management.

Love and Logic parents use allowances to teach their kids money management—and responsibility. When kids struggle with money at an early age, they learn not only to be more fiscally responsible, but this lesson helps them be responsible in all areas of life. Here are some helpful rules for allowances that can help your kids get the most out of this terrific learning experience.

Rule One: Children do not earn their allowance
We do not pay them to do chores. Kids should see chores as contributing their fair share of the family workload. We only pay them for chores when they do our chores.

Rule Two: Provide the allowance at the same time every week
Put the cash for the allowance in an envelope and include a small invoice that lists the breakdown of the allowance (for example, a child might have $2 for spending and $8 for lunch money). You can add a message, such as, “Because we love you. Spend it wisely and make it last.”

Rule Three: Never insist that children save the allowance
In general, people learn to save money only after they have experienced being broke. It can be difficult for parents to let their kids go broke, but it will be a lesson that their kids will remember.

Rule Four: As long as they are not engaged in illegal activity, allow children to spend, save, or waste the money any way that they see fit
They can use their money any way they want. For example, they can pay others to do their chores. Here’s the catch—when the money’s gone, it’s gone. No more allowance until the next week’s envelope.

These rules are based on one of the fundamental principles of Love and Logic—let the consequences do the teaching. 

Dr. Charles Fay

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