Kids that are smart about money learn from the habits of their parents. Being a money-smart example is the best thing you can do to teach your children how to manage their finances. This includes paying bills on time, buying only what’s necessary, putting your “want to spend” money in savings, and using cash to pay instead of credit cards.
I believe that allowances—as long as they are earned with a combination of chores, achieving proper grades in school, and having a good attitude/behavior overall—can give most children some real-world experience with handling money.
Make sure that your child’s chores are age appropriate. Kids ages 5 or 6 can be tasked with putting dirty dishes away in the sink. 12-year-olds can take care of yard work and garbage maintenance. Make sure that your daily routine allows enough time for your child to take care of chores and that you pay allowance on the same day every week.
When children are old enough to go places with their friends without too much parental supervision, raise your child’s allowance accordingly so that they are spending their own money, not the money set aside for your budget. Be flexible and compromise with spending when a child has earned it. Say, if your son wants to buy a new video game that costs $60, but he only has $15 saved. Match his amount and allow him to earn the rest by doing extra chores or volunteering in the community.
Giving your kids a strong financial foundation has a lifetime of rewards.