All posts by Lynne L. Finch

“It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children to manage money as a number starting with kids as young as pre-school and continuing through high school.

Try the “No Extra Cost” Allowance for Kids

Here’s how you can turn allowance for kids into a learning experience at no extra cost to you with one simple change; transfer money you are already spending on your child and have him or her manage it for certain child-appropriate expenses.

When we give money to kids in the form of cash they learn how to spend that amount of cash. They spend little thought to planning. However, if you transfer money to them as a number they would have to do some thinking and planning, along with a little math.

By making your kids think about money as a number you are helping them learn to manage money instead of simply spending it. Anyone can spend cash in hand, but it takes some planning to think of money in terms of “how much is left if I do that?”

To make your child’s allowance a real-world learning experience, start adding some appropriate expenses for your child to manage. In each case, the parent determines the amount and transfers is as a written deposit to the child’s account. The child now has that amount of “credit” with the parent who acts as facilitator at purchase time.

Vacation or Event Fund

The child is given a number that represents what he can spend with one caveat. “Don’t ask for any more money.” The child has complete ownership of the decision and the result. Parents can act as advisor, “If you buy that you’ll have $5 left. Is that okay with you?”

Activity Fund

Parent transfers an amount to child to be subtracted for participation in certain activities paid for by parent. The amount is not as important as the experience of subtracting the number from the balance which can be a small amount such as $1 for each soccer lesson. This gives the kid some skin in the game and helps him appreciate the value of the experience.

School Supplies Fund

Parent estimates an amount for school supplies at the beginning of the year for a specific list of items. The child is responsible for allocating the funds to make the purchases. The child will better appreciate the value of supplies and may re-use and take better care of supplies. It the child wants to spend more the additional amount comes out of their regular allowance. If she spends less she can keep the difference.

When your child is responsible for keeping track of money in a written account, the power of adding and subtracting come to life. By keeping track of money as a number, your child sees how every money decision affects the balance. By having your child pay for age-appropriate expenses he develops a sense of importance and sees the result of good spending decisions.

Spending decreases the balance and makes the number smaller. Each deposit  increases the balance and makes the number bigger. A decision to not spend (save or defer spending) keeps the balance from changing.

Learning to manage money as a number is an essential skill your kids will need in the future.  When kids add and subtract numbers in an account they see the result.  They understand how a balance changes with each decision.

Parents can try the no extra cost allowance to help their children understand that each money decision affects their total money resource. Kids need to see that there is a bottom line. By setting up a system as explained in my book, The No-Cash Allowance, your kids learn that managing money is all about making decisions.