Financial responsibility begins by understanding that everyone has duties and responsibilities. If you provide your children with an allowance, you can teach them about the direct correlation between work and reward by requiring them to contribute to the well-being of the family. The contribution can be age appropriate
For example, a four-year-old has very little need for money, but it’s a great age to begin learning about how to make smart money decisions. You can offer to pay your child $1 per week to pick up her toys, help set the dinner table, and make sure that the cat has food and water.
Allowing your children to make as many decisions as possible about how they spend their money — given some minimal guidelines for safety — lets them practice money-management skills. Without the opportunity to practice making wise financial decisions, children won’t learn these valuable lessons until much later in life, when they’re likely dealing with much more significant issues. Allow them to make little mistakes and grow from those mistakes while you’re around to guide and direct them.
One way of handling the subject of allowances with your children is to require every member of the family to perform certain jobs without expecting payment. For example chores such as making their beds every morning and picking up dirty clothes, toys, and homework and returning those items to their respective places when finished could be considered necessary. The children can also help prepare dinner and load the dishwasher. They could earn allowances for any jobs performed above and beyond the required family responsibilities. And all money earned from any source, including allowances and gifts, would be divided into three categories:
One-third must be saved: Open savings accounts with your children at a local bank. Every time they received any money, the first thing they should do is trot to the bank and deposit one-third of the money in the bank account. After a few trips to the bank, your children can carry their own money, and instruct the teller, with little or no intervention from you.
One third must be shared: The second portion of the children’s money could be shared in any way that the child deemed appropriate, as long as the money was being shared with people in need. For example, your child might be able to help a child his age who lives in a remote village in Africa. One-third of your child’s income might not be enough money to provide the monthly sponsorship fee. You can give him the opportunity to raise more money by doing chores around his house, for his extended family, and for neighbors. Finding pen pals for your child can change both of their lives for the better.
Money to spend: The final third of any income earned or received can be spent. Your children learn a lot when you give them a considerable amount of freedom with regard to how they spend their money. They can spend it immediately, but when it's gone, it's gone. Don't offer them loans or advances. If children spend their money each and every week, nothing will be left for a bigger purchase later. Over time, your children will learn to budget their money and plan their expenditures to get the best “bang-for-their-bucks.”
