6 Important Money Management Tips For Kids

pink piggy bank with coins laying around the bottom of it


Dr. Valerie Allen

Licensed School Psychologist ~Certified Case Manager

Money Management for Kids


Money management for children begins by establishing a connection between work and earning power. The next step is to help children understand the difference between “What I want” and “What I need”. To manage money effectively, children need to experience both immediate rewards and the ability to work toward long term goals. Once they make the connection that money is earned as a result of their hard work they will soon learn how to save and spend wisely.

Here are some ways that parents can help kids with their cash.

  1. Start Even preschool aged children understand a reward system that is based on performance. Children can earn praise, stickers, and treats by fulfilling expected behaviors, following rules, being cooperative, and taking care of their belongings.
  2. If/Then Contracts. Set an expectation and follow it with a consequence. For example: after you finish your food, you may have dessert; when you pick up your toys, then you may watch television. This leads easily into performance contracts with older children. After your room is cleaned, then you may go out. When you finish your chores, then you get paid.
  3. Connect Money and Work. No handouts! Do not tie money to rewards nor take it away as a punishment. Payment is based on task performance. Decide which household chores are required simply as being part the family routine. This might include making their bed, clearing their dishes from the table, and so on. Next create a list of extra household chores each week with a specific payment. Once the job is completed, payment should be made. Be careful not to withhold payment for misbehavior or other unrelated matters.
  4. Save and Spend. Have them save 10% of their earnings and allow them to spend the rest as they see fit. Start a savings account. Have children take their money to the bank or credit union. To encourage long range plans, have them save their pennies in large jug. On their birthday match whatever they have saved and put half in the bank and use the other half for a party.
  5. Needs and Wants. Establish the tasks that you will pay for and agree on a specific amount of money. Also discuss quality control. If they want something they cannot afford, they should be encouraged to take on another task or save toward their goal. If they want something beyond their means they should use their own money.
  6. Limit Restrictions.  Discuss and mutually establish any rules about how they may spend their money. For example, if you do not allow them to purchase certain food items, books, or CD’s establish this at the on set.   Otherwise, do not interfere with their spending. Be careful not to rescue them by providing funds for things they can buy for themselves. Do not get involved in pay back schemes, lOU’s, advances, or extending credit!

Helping your youngsters follow these tips will give them an early start on the road to financial planning security.

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Dr. Valerie Allen is a child psychologist in private practice. She presents seminars for parents and professionals in the field of child development and has published a children’s book, “Summer School for Smarties.”  Oh yes, she has also raised six children!


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