U.S. kids get an average of $67.80 per month in allowance[1] – that’s $815 a year. What they do with it might depend on the financial lessons they learn at home. Kids are like grown-ups. They learn by doing. So by giving your child real-world experiences with spending, budgeting, savings and credit, you’ll be providing the tools they need to help make good financial decisions throughout their lives. You can start with these four activities and customize them to your child and family.

Activity #1. Involve kids in shopping.
It’s likely your child has already picked up on your spending style simply by accompanying you to the store. Now it’s time to actively involve them in purchasing decisions. You can use real cash to help them visualize the value of money, then try these experiences:

  • Make a family purchase with your money. Maybe you need dish soap and shampoo. Have your child help you figure out how much money it will cost and how much change you will get back. Then, have them help pick the bills to pay the cashier. Getting this involved in a transaction will help them better understand the concept of exchanging money for goods and services.
  • Make their own decision about how to spend $20. It could be your money, or money they’ve saved. Give your child the freedom to pick out one or several items to buy without going over. You can talk about whether they should spend it on items they need or items they want. Ultimately, let them decide. Then check in with them a few days later to see how they feel about their choices. If they selected three cheap items that are now gone or broken, was it worth it? What would have happened if they spent the full $20 on one better quality item?

Activity #2. Help your child learn to budget.
Even a small allowance can help your child build good budgeting skills, and budgeting is the first step to saving. If they want to buy a new bike, help them figure out how much of their allowance they need to save and how long it would take. For instance, your 10-year-old wants a bike that’s $60 more than the model you had in mind. This is a chance to practice math and budgeting. If they get a $20 weekly allowance and continue to spend $10 but save $10, in six weeks they will be able to afford the extra $60. Remember to do this activity on an item or experience that is really meaningful to your child. They’ll be more engaged.  

Activity #3. Make savings goals.
Some kids are natural savers. If your child isn’t one of them, this will take some encouragement and practice, such as putting up a tracking poster, a picture of the item they are saving for or a “don’t get discouraged” message in their bedroom.

  • Set a tangible budget goal. Agree on an item or experience your kid needs or wants. This could range from buying a new $12 toy by themselves to contributing $50 toward the cost of summer camp. Then help them understand how long they will need to save to reach the goal.
  • Discuss different items your child can cut back on buying, such as candy and toys. This helps them see that being frugal results in more money to spend on larger items or to save. For example, if they want to buy $2 in candy every week, explain that they could save $8 a month and buy a small toy car, or save $16 in two months to give to a charity.  
  • Introduce “automatic” savings options. Think of it as the kids’ version of adults who have money from their paycheck automatically deposited into a 401(k) or savings account. For kids, this can be done by manually depositing dollars into separate jars, or, if available, using your bank’s online tools with kids that already have a checking or savings account.

Activity #4. Define credit in kid-friendly terms.
For young children, the fact that we can get a loan to buy a new car can seem like magic. They need our help understanding that there is no such thing as free money, especially when it comes to credit. Help you child understand that credit is borrowing money now, and promising to pay it back later.

For a real-world credit activity, go back to the store. Perhaps your child sees a stuffed animal they like but they didn’t bring any money with them. Explain that they have three options:

  • If they buy it with your money now and promise to pay it back later, that is a credit purchase.
  • If they ask for their allowance early to buy it, that is a cash advance.
  • If the toy costs more than they have saved, but they promise to pay you back for it on a set schedule over the next four weeks with their allowance, that is a loan.

Explain why it’s so important to pay you back on time. The more trustworthy they are with borrowed money, the more you can trust them to borrow in the future. For a child, being trustworthy with money is like having a good credit score.

For additional help getting started, here’s a worksheet you and your child can work on together to talk about spending, budgeting, savings and credit. This exercise can be the first step in working toward your child’s financial independence.

For an in-depth look:
Conversation starters for parents of children ages 6-12