As you probably know from experience, giving your kids money is one thing and teaching them what to do with it is another. That's why allowances are so popular. It's a way to get money into your kids' hands so they can practice using it, while creating an opportunity to talk about money and teach good habits.
But how do you make the most of an allowance?
The jar system is a great way to teach kids how to manage money wisely and to help them develop the skills they'll need as adults. By being able to visualize their spending and saving over time, kids are able to see the relationship between their values and their money so that they can make better choices.
The jar system works by dividing an allowance into three categories or "jars": a part to be spent, a part to be saved, and a part to be given to others. It encourages mindful spending, teaches the power of delayed gratification, and helps kids develop a sense of belonging in their communities.
Here's how to set it up:
If you don't already give your kids a regular allowance, you'll have to decide how much to give them and how frequently. A good rule of thumb is to give a dollar per year of age on a weekly basis. So if your kid is five, give them five dollars a week. Once your kid is over 10 years old you may want to sharply increase their allowance to include a budget for some of their clothing or things like their phone bill (Gail Vaz-Oxlade's book Money-Smart Kids has great advice on this). As your child's age increases so should their allowance and financial responsibilities.
You'll also have to decide if you want to tie their allowance to their chores. Some parents like to do this while others don't because they believe chores are a responsibility that shouldn't be financially motivated. A popular option (and one we recommend!) is to give a base allowance that's not tied to chores, but provide opportunities to earn more money by doing extra tasks around the house.
Don't get hung up on figuring out the perfect allowance number. You can always change it, and the amount itself matters less than the fact that you're using an allowance as a consistent opportunity to practice using money. Allowance amounts vary and what's right for another family won't necessarily work for yours, but the general idea is to give your kids enough so that they can buy some of what they want but not so much that they don't have to learn how to make trade-offs.
Divide the allowance into a portion to be spent, a portion to be saved, and a portion to be given to others. As a family, you'll have to decide on what percentage to allocate to each category (i.e. 60/20/20, 70/20/10, 80/10/10). Again, don't get too caught up on this. You can always adjust it down the line. The main thing is that you're introducing the concepts and teaching the value of paying yourself first. Some parents like to add a twist by matching savings and giving contributions.
It's important to physically separate the money allocated to each category because it helps kids see how much they have and where their money is going. By making money visual kids learn that it is finite—once you spend everything in your spend account you don't have any more money until next "payday". You can DIY this yourself at home by using three labeled jars, or you can use an app like Abacus to create separate accounts that you can track digitally.
Outline what each jar is for and why they're important. The spending jar can be broken down into two parts: day-to-day fun money and planned spending for specific goals, like a new skateboard. The savings jar is for long-term savings and shouldn't be touched on a regular basis so that kids can see the power of socking away a little money consistently. The giving jar is for money that will be donated to a cause that's important to them.
Set up spending guidelines with your kids so that they know what they're responsible for covering with their allowance and what you'll cover for them. Some kids are natural savers and would rather save their money and spend yours, so you'll have to be firm about them using their own money for the things you agreed they'd be responsible for. If your kid is a natural spender and consistently finds themselves out of money before their next allowance, that's a good lesson in delayed gratification and an opportunity to talk about priorities.
Set goals for their savings and giving jars and decide what will happen when they reach those goals. Once your kids are a little older, you may want to start introducing them to investing by opening an investment account with some of their savings. Your child should select a cause or organization they have a personal interest in to donate their giving jar to. This is a great way for them to build a sense of belonging in their community, and you may even encourage them to volunteer at their chosen organization so that they see first-hand the positive impact their money can have on the lives of others.
Establish regular check-ins where you can set goals together, discuss what's working and what's not, and celebrate wins. Family meetings help make sure everyone is involved and on the same page. It provides a forum for kids and parents to speak up so that you can set expectations and resolve disagreements. Sometimes the hardest thing about money is simply being able to talk openly about it, and that's what family meetings are for.
Whatever allowance system you decide to use, the important thing is that you're getting your kids interested in money by talking about it and having them use their own. Over time, you'll find a system that works for your family. Like anything else, this is all about practice and experimentation! And there's no better time to start than today.