Allowance Tips: Good Money Management Begins with an Allowance

Teach philanthropy at an early age. A portion of a child's allowance — 10 percent — should be allocated to charity. Encourage children to participate in canned good, clothing, or toy drives for charities. Help them to respond to natural disasters, such as hurricanes or earthquakes, outside their community by donating money to help.

Teach saving at an early age. It's important to put something aside for the future. Teach your
children that saving isn't for leftover money. Both the allocations for charity and savings should be made before any discretionary spending takes place. As with the donations to charity suggested above, the child should be encouraged to set aside the same portion of allowance — 10 percent — for savings. Children should have savings accounts by the time they're 8 years old. If older children don't have savings accounts, remember it's never too late to start a savings account for a child.

Encourage an entrepreneurial spirit. If children have a special goal, encourage them to find ways to earn the necessary funds. Don't create unnecessary jobs just so they can meet the goal. That's the same as giving them the money. Let them find a job and make the offer. If it meets a need and the price is right, hire them.

Never reward good behavior with tangible gifts. Goodness is its own reward. Your approval and words of praise should be sufficient. Paying for good behavior leaves parents open for juvenile blackmail. Parents don't want to hear, "I'll stop crying if you take me to the toy store," or "I'll come home on time if you buy me a new stereo."

Don't try to compensate your children for your own deprivation as a child. There are some purchases that signify changes of lifestyle and qualify as rites of passage. Allow your children the pleasure and pride that making those purchases for themselves can bring.

Teaching children financial responsibility can be an exciting and fun-filled experience. It's not always easy, but when parents are consistent, the rewards are immeasurable. Parents will be giving their children skills that will benefit them for the rest of their lives.