It’s never too early to start teaching your kids about money. In fact, children have an awareness of the concept of money well before they are taught how to add and subtract in elementary school. Around the age of five, a child can understand that you work in order to get money to pay for things such as food, clothing, or toys. However, until your children get older and start working to earn their own living, they may have little to no problem with spending money like it grows on trees. Your money, of course. It’s your job as a parent to teach your children how to spend sensibly.

The Pre-Allowance Years

Your child should be old enough to understand how money is counted or subtracted before you give an allowance. He or she will likely be between the ages of five and seven when able to do so. You should make the purpose of the allowance clear from the start. What kinds of expenses will the allowance cover? Keep in mind that children who are under ten probably should have the responsibility of paying for their lunch with their allowance. It’s not a bad idea for older children, though. Consider whether allowance money will be contingent on the completion of weekly chores and if so, make this clear to your child.

Negotiations

Most parents use a weekly allowance to teach their kids about money; however, that’s not to say that’s what an allowance always does. One of the most common complaints that parents have when it comes to allowances is that it puts them in the position of frequently having to listen to their children beg for a raise or advance. Some experts argue that when children negotiate, they are practicing for future interactions with their bosses. You might be surprised when you engage them in the negotiation process, asking them how long it’s been since their last raise or why they think they deserve the money.

How Much?

The most difficult decision that parents face is how much money to give in the form of allowance. This will depend on a number of factors, including your own beliefs and values, your income, and your intuition.

Your children will be quick to bring up how much their friends are getting each week; however, don’t let that influence your children. One solution is to give your children the equivalent of what you got for allowance, adjusting for inflation and assuming that your parent’s were in a similar financial situation.

Setting Terms and Conditions

If you want to help your children learn about saving, make it a condition of their payment. A percentage of their weekly allowance should go to a savings account, whether an actual starter savings account in their name – some banks offer these – or a physical savings account, such as a piggy bank. It’s important to teach your children the difference between short- and long-term savings goals. If they end up spending all of their money on small purchases each week, they aren’t effectively learning how to save. The best way to teach is to show your child through your own actions and especially when your child is older, to involve him or her in the purchases that you make.