Money Skills for Kids

Lesson 2: Allowance...How Much Is Too Much

Loans, advances, and gifts

Assuming that the allowance you give to your child is for the purpose of learning money management, and is not to be used to pay for actual necessities, the making of loans and giving of advances should be only a matter of last resort. Similarly, the quick giving of monetary gifts upon demand should be a matter of rare exception rather than frequent occurrence.

It is important to remember that in order to learn how to manage money responsibly, children will need to learn to forego instant gratification. By experiencing hands-on that it takes two weeks to save up two allowances of $5 each to equal the $10 s/he needs for the game s/he really wants, s/he will learn how to manage a cash flow, how to plan ahead, how to set and stick to goals, and how to save to satisfy a goal. To this end, the Canadian Imperial Bank of Commerce (2) has devised a great online game entitled “Allowance Room”, which enables children to learn how long it will take them to save up for an item given their weekly allowance and any money mom or dad may nor may not be willing to part with in addition to that allowance.

Young children, who are still learning the ropes or have just begun to receive an allowance, may be reminded that the items they really want but where saving would take too long to accomplish, can be put on a wish-list for the next holiday season or birthday.

Older children, however, may be taught lessons on borrowing and lending, generosity, and how to be a savvy consumer. Savings for big-ticket items may be subsidized by the parents, and loans may be taken out with stated, and written out, repayment terms. These lessons, however, would be lost on the younger crowd.

Please note that we cover the use of credit cards in a later chapter. Younger children, however, should now be introduced to the elementary aspects of borrowing money and repaying it by visiting Wise Pocket's guide to credit.

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