How (and Why) to Dock Your Kid’s Allowance

Raising well-rounded kids takes years of careful planning and effort. Too often, money-related topics are excluded from this childhood equation, leading to young adults who handle their finances poorly and require credit repair help down the line. When teaching your kids the ABC’s of life, why not make an example of their early cash flow? When allowance day rolls around, take them to the bank and require them to save 30% of their money. Implementing this technique early may result in the characteristics below—ones they will carry for the rest of their lives.

· Responsibility.

Kids learn by example. If Junior is allowed to spend his entire allowance on video games each week, what’s to stop him from adopting the same habits as an adult? On the other hand, asking him to save 30% of his money means asking him to act responsibly. It illustrates that not every penny they should be put towards the fun and frivolous. Saving is important at every age.

· Conservative spending.

Many adults struggle with the “I want” vs. “I need” dichotomy that often leads to credit repair. It’s no surprise that kids struggle with the same inclinations, asking for big-ticket items without understanding the value of a dollar. Docking your kid’s allowance in favor of spending forces her to curb her enthusiasm when it comes to spending recklessly. Does she want a pair of $100 shoes? Ask her to consider how much time and effort she is willing to put forth. Once you have framed spending in a cost vs. benefit perspective, she is bound to give that price tag a second glance.

· Planning skills.

Just like credit repair, we all know that rewarding tasks can take time. Saving for a house, achieving higher education, and working toward a promotion are all examples of planning skills put into action. These same skills are fostered by the patience and discernment learned at an early age. For example, 10 year-old Michael is saving to buy a $175 bike. He has calculated how many weeks of allowance it will take and is doing side jobs for the neighbors to further his goal. Rather than giving Michael the money outright, his parents are helping him understand the broader point: the value of the item he wants. Michael is far more likely to take care of the bike he has earned and will adopt the same habits in adulthood.

· Rewarding futures.

Sure, your kids might hate your rules about saving. After all, it’s their money, right? –While they may have a point, investing in their future may have them thanking you down the road. Does your son want a car for his sixteenth birthday? Thanks to you, he can use his years of savings to buy one. Is your daughter planning a vacation after college graduation? A dip into the savings account may provide the cash flow she needs. Remind your kids about the expenses they face in the future and ask them to be patient. Saving for more important things like retirement will come more naturally to those who have experience with wise investing.

The bottom line: Teaching your children is about more than manners and basic math. Give them a chance to learn by doing and help them save money now. It’s never too soon to learn the important lessons.