Allowance helps build good habits

When you want to teach a child good financial habits, allowance can be a powerful tool. When you give your child allowance, you give them freedom to experiment with financial behavior. Children can make good decisions or bad decisions, but they do so on a small scale, in a safe environment, learning from their mistakes or earning rewards for good behavior.

When they’re learning how to manage their allowance, it can be helpful for your children to see their good and bad decisions in front of them, in the same way that it’s helpful for you to review your past expenses before you adjust your budget.

So here’s what you can ask your children to do: write down what they buy with their allowance.

You want to help your child become aware of his or her own spending habits, and that’s easy to do with a journal. Once your children can see their own decisions on paper, it’s much easier for them to think about trade-offs, about things that they would have liked to have bought and can save money for in the future.

Just like with adult budgeting, basic, honest financial awareness is the first step toward making a plan for future spending. When it comes to your child’s allowance, you don’t want to control the financial decisions yourself. You want to guide them toward making good decisions for themselves.

So when they show you their financial journals for the week, you can ask them about other things they may want to buy with their allowance. You can help them portion our their allowance, between things they want to buy now, and things they want to save up for with a little extra planning.

Respect for money

Writing down every purchase also teaches your child a basic consideration and respect for money. When you keep a record of something, it’s a sign that this is something that’s important enough to keep a record of, to give some care and consideration. Money is something that people work hard for, that you worked hard for, and it’s something your child is going to work hard for when he or she grows older.

It’s also a limited resource, and having respect for those limits early on can keep your child out of financial trouble in the future. Money should be handled with care, even as it brings enjoyment, and the simple act of writing purchases down reinforces that lesson.

Building up that simple discipline and sense of awareness is bound to help your child as he or she grows older and makes increasingly complex financial decisions. It also strengthens basic reading, writing, and arithmetic skills, so that your child is continuously learning. When your children gets started, help supervise your children as they remember and write down their purchases. You can ask to see their complete journals when allowance time rolls around next, so that you can help them review their purchases and make upcoming plans on a regular basis. That consistent attention and involvement will build the foundation for solid financial management in the future, as your child learns and grows.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. You can email him at


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