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Allowance Method: Teaching Kids to Save

Karen Cordaway

In an effort to teach their children about managing money, parents often start with a weekly allowance. A set amount of money is given out and used for discretionary spending. Guidelines are normally put into place from the beginning to gently guide the buying decisions of the child.

Parents sometimes ask me how much money to give each week for allowance. I explained how there are many different methods, but I also tell them that I like to pay my own children half their age. So if your child is ten, that means $5 a week.

Although this method initially started out as a complete experiment for my family, I really like the "Half Your Age" allowance rule. I just chose the option that cost me the least amount of money at the time. I figured I could always give them a "raise" later, but I thought if the amount they received was too much from the beginning, it would be harder to undo later. Like adults, no one likes a pay cut. I didn't want to potentially have to change the dollar amount and sour them on the whole idea.

So this method was my way of sticking my toe in the water when it came to starting an allowance with my own children. I truly found this to be an easy rule to follow and thought the dollar amount was a good starting point. I didn't have to renegotiate the amount as they got older. They automatically got a raise on their birthday. Who can argue with that?

I've also heard of people giving one dollar per age. That can work as well. It all depends on your budget and what you think is enough. I just truly wanted them to just get use to paying in cash, seeing what items cost, what they could afford, making buying decisions and mapping out a plan to save. No matter what you choose, the idea is to be consistent and pay them on time so they know when to anticipate payment.

There are digital ways to keep track of your child's allowance, especially if they are saving it for a set goal. It's great to have a reminder in your email so you can remember to pay up. It's nice to see how things add up when you are saving. Those systems are wonderful but I believe in starting with hands-on ways to save.

In the beginning, you can set up a concrete system, which I highly recommend. Any piggy bank, jar or container should do the trick. I personally like the container to be transparent. I want my child to physically see the money growing when they put it away. We currently use clear mason jars. They are trendy and attractive to my kids.

Once you narrow down your options, you can let your kids choose the container they like best. It keeps them engaged in the process and creates buy-in from the beginning. I find that the clear mason jars or plastic containers work well with most age groups, though you have to be super careful if you have glass ones. Also, little kids may prefer a piggy bank.

It gives a more thorough understanding of the concept when kids have to physically put the money away themselves. They see that it is in their possession and they actively practice putting it away for safe-keeping. The concept is modeled with containers and cash. Provide many opportunities to practice and demonstrate mastery before switching to a digital system.

Drawings such as graphs or tables can come later. In the beginning, you just want them to put the money into the container and keep it there without spending it or losing it. Once they have enough practice understanding the concept in the concrete phase, then you can show them drawings or charts that represent those concepts. They will also be better able to manage symbols and numbers that are more abstract later on.

This makes meaningful connections and blends the conceptual and procedural understanding in a structured way. Your child's learning and mastery of their money management skills depends on the number of opportunities they have to practice. The more chances they get to practice their money management, the more likely they are to master this skill, and that will serve them well later.

Karen Cordaway is a teacher, website owner and writer who currently teaches personal finance to children.

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