Money Choices: Save, Spend, Donate & Invest

In my first blog post, I talked about the importance of being a good financial role model and about speaking openly with your children about money. In this second post, I wanted to share my basic philosophy for raising money-smart kids.

At every stage of your kids’ lives, when they earn money, they will be faced with 4 choices: save, spend, donate or invest. How they earn money and the way in which they implement these decisions will evolve as they grow from young kids, to pre-teens to teenagers to young adults. For parents struggling with how to raise money-smart kids, try to keep this framework in mind. Consider the age and stage your child is at, pick one of the 5 topics (earn, save, spend, donate, invest) and address it in an age-appropriate way. A Parent’s Guide to Raising Money-Smart Kids can help.

When your kids are very young, their earnings are limited to gifts and tooth fairy money. But once they become pre-teens and older, they begin to experience the world of work. They may start off doing odd jobs like babysitting or show shovelling. But by their teenage years, many kids will get their first “real” job and a decent paycheque. Having a job gives kids a sense of how much time and effort is involved in earning the money required to buy all the things they need and want. It helps them realize that money doesn’t come from ATM machines; you have to do something to make that money first.

Another important source of income for kids is an allowance – from a few dollars as a young child to major infusions of cash for post-secondary students. Some parents feel their children should earn their allowance and learn that nothing comes free. In this case, you can link your child’s allowance to the performance of some basic household chores. Others feel that paying their child to do chores around the house sends the wrong message – they feel those chores should be done out of a sense of family responsibility. There is no correct answer – do what feels right for your family.

Whatever you choose to do, remember that an allowance is a money management tool, an opportunity for your child to make choices about how to save, spend, donate or invest their money. It’s best if they learn from their mistakes when they are younger and the stakes are low (though young kids need plenty of guidance). By the time they are on their own, they will have had plenty of practice, and they will have acquired the knowledge, skills and confidence to make responsible financial decisions.

Try to pay allowance on a regular basis so that it feels like a steady income your kids can rely on. I find that weekly is convenient for both me and my kids. For young kids, a rule of thumb is to pay $1 per year of age per week, so your 7 year old gets $7/ week. For older kids, an allowance can be used to transfer more financial responsibility for their needs and wants and should be tied to a budget.

Next, we will delve into the other facets of money management: saving, spending and sharing.

Do you pay your kids a regular allowance and how does it work in your household?

Robin is the author of A Parent’s Guide to Raising Money-Smart Kids and can be found on Twitter at @robintaub.

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2 Responses to Money Choices: Save, Spend, Donate & Invest

  1. Cindy says:

    My daughter is 10, and we currently give her $5.00/wk allowance.

  2. Robin Taub says:

    That’s great Cindy! Be sure to give it to her in small denominations so she can easily allocate to save, spend, donate and invest.