When is it Time to Teach Children About Money?

Q. Dear Bracha, What age is appropriate for teaching children about money? Is it appropriate to give young children an allowance? How much of an allowance is appropriate? Should allowance be used as a reward and punishment? I never received an allowance, but it seems quite popular, and I don't want my child to feel left out. At the same time, I want her to learn fiscal responsibility from a young age. I'd love to hear your thoughts about teaching children about money.

A. You have picked a wide open topic to which there is really no "correct" answer. There are many ways to help children to understand the use of money and become responsible. When to give children an allowance and how much to give depends on many circumstances including what the parents can afford.

It is unfortunate that we feel pressures from what others are doing around us, but it is a fact of life. We must remember not to be too influenced while understanding that we want our children to fit in and not be ostracized. The firm guiding principal in this and many other parenting quandaries is that family values must be maintained! It is fine to give your children an allowance but how are they using it? What are the rules connected to this money? Can they spend it all on candy because "they bought with their own money"?

My suggestions on this topic are:

Teaching children about money at a young age should not include an allowance. To help young children understand the importance of money and how to spend it responsibly, try having a weekly trip to the corner store where they have one or two dollars to spend on what ever they like. Guide them to understand how much that will buy, including reading prices and let them be able to save the leftover money for next week if they want to get something that costs more. Be prepared to keep track of things and write it down so as to avoid mistakes or upset children. With this exercise your children will benefit in many ways including feeling very special that you are taking them to the store for a "treat". They will not even realize the many important lessons they are learning.

For children around ten years old and above, an allowance may be more appropriate. How much money to give them depends on what you expect them to do with it. Some children need money because their peers go out for pizza and if they don't have pizza money then they will no longer be part of the group. Some parents steer their children towards a hobby and allow them an allowance which they can only use to buy things pertaining to the hobby, but in that they have free choice. Other parents simply give their children money on a weekly basis to do what ever they please no questions asked. In my opinion, it is a good idea to supervise (or restrict) your child's spending until you know that he or she can spend responsibly.

As a parent, you provide everything your child needs. An allowance is beyond these things and is meant to be a learning experience, not a way for parents to avoid giving their child things.

Because an allowance is meant solely for teaching children about money, it should not be used as either a reward or a punishment. It is a gift in recognition of a child's age and the fact that parents feel their son or daughter is capable of making good choices with regards to money. Once an allowance has been established the money belongs to the child and should not be linked to behavior. However if a child were to break something, it is not unreasonable to demand that he/she pay for it (or a part of it) out of the allowance money. This teaches a double lesson- it teaches your child about spending money responsibly and also taking accountability for his/her actions.

From helping your children choose a candy that has the best value to helping them spend their allowance on a hobby or other coveted item, you'll teach them about the value of a dollar and how to treat money responsibly. Over time, they will learn that they can spend all their money on three pieces of designer clothing and have nothing else to wear for the year, or make less expensive choices and get the money to go farther. The one thing all these age groups have in common is that the lesson is lost if they are bailed out by their parents. The money they have been given has been decided on in advance and deemed reasonable for their needs and they MUST stick with in these limits or earn extra by doing odd jobs, babysitting and other tasks. Sometimes these lessons are difficult, but they are an important part of teaching children about money. I'm sure that with your guidance most of the pitfalls will be avoided.

Wishing you and your family all the best, Bracha