Use an allowance to teach your kids about money

coinsOne of the building blocks of personal finance for me came from my early exposure to money management at home through earning an allowance. Deciding what method to use in order to give your children an allowance which both educates them and enables them to buy stuff for themselves can be complicated. The author of Fivecentnickel shares an intriguing method which he uses in his house of four. His system for allowances revolves around allocating the allowance to several locations such as spending, long term saving and charity.

They recently revamped the system moving to distributing the allowance once a month to ease the distribution between purposes and to re-enforce the need to budget to their kids. The allowance system they use bases the weekly amount on how old the kid is. Even though it isn't stated, I am going to assume that with age comes more responsibility. The kids can even get a dollar for dollar match by moving money from spending into their kiddie IRA.I totally dig this plan! If I were a parent I would definitely institute something similar. One of the coolest parts is that the use of long term savings allows parents to pay slightly more since it is money they would likely already be tucking away for a car or college, but in this manner they are teaching their children the importance of investing in themselves. When I was growing up our allowance wasn't divided up like this but we quickly learned the need to save for purchases and for end of the month movie trips once we learned that we couldn't get extra money without additional labor.

What methods do you use for allowance at home? Is the amount tied to age, responsibilities or simply a set amount equal to your snowflake's needs?

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