Teaching kids to be free means teaching them responsibility, financial discipline and fostering entrepreneurial spirit.
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Top 3 things you could do with your kid right now
1. Start giving allowance to your kid or reconsider your current allowance policy
By giving allowance to the kids, we want to achieve 2 main aims:
- Teach them financial responsibility and discipline
- Foster their entrepreneurial spirit
To achieve these aims, we should consider four things:
- Start giving allowance at the right time (not too early and not too late)
- Give the “right” amount of allowance
- Avoid the trap of entitlement mindset
- Avoid the trap of employee mindset
| Advice | Recommendation | |
| Timing | When the kid is able to count the exchange | 5-7 years |
| Amount | Amount should correlate to responsibility passed to a kid | 0,5-1 euro/week per kid’s year (i.e. a 6-years-old could get 3-6 euros per week) |
| Trap of entitlement mindset | Don’t give more money if your kid runs out of it | – |
| Trap of employee mindset | Teach your kid that earning money is fun |
Timing.
There are 2 questions that could help you determine when is the right time to start giving allowance to your kid:
- Does your kid understand the value of money? Can he say the difference between bills and coins?
- Is your kid able to count exchange when buying something?
If the answer to both questions is “yes”, it’s time to give the allowance! Usually, the kid is ready to get the allowance at the age 5-7.
Amount.
There is no right answer to the question how much you should give to your kid. However, the bottom line is this: the higher amount you give to your child, the more responsibility you should pass to her. In other words, you should reduce your budget by the allowance amount and increase your kid’s budget by the same amount.
For example, if you usually buy candies in a grocery store for your kid for 1 euro twice a week, you should give 2 euro per week allowance to your kid and say that she will buy candies from her own money now.
The bigger the kid, the higher the allowance and the more responsibility. At certain point of time you can pass to your kid full financial responsibility for her clothes, extracurricular activities, books, entertainment, etc. It means that you will not spend your own money on those things anymore but your kid will.
Trap of entitlement mindset.
If you give your kid allowance without passing over the related responsibility, there is a risk that you create an entitlement mindset for your kid. I.e. your kid will think that he is entitled to get money from you. This is especially true if you make these 2 mistakes:
- You use your own money to buy the things that your kid is supposed to buy (e.g. your kid buys candies himself but you also buy candies for him from time to time), and/or
- You give your kid more money when he runs out of it.
Don’t do these mistakes!
Trap of employee mindset.
If you give allowance only when your kid does household chores, there is a risk that you create an employee mindset for her. I.e. you are training your kid that she can get money only when she works hard and trades her time for money.
It might be acceptable if this is what you want to teach your kid. However, keep in mind that financial freedom is about money working for your kid, not your kid working for money.
Therefore, I would not suggest linking household chores with the allowance. It is only acceptable paying for non-standard household chores that your kid does in addition to what is required from her. For example, for cleaning the car, mowing the lawn, etc. (if these are not standard chores for the kid).
Also, do not forget to consider the form of allowance: is it better to transfer money to debit card or give it in cash? It is the decision of each parent, however, I found 3 reasons in favour of debit card.
2. Give your kid at least 2 household chores
Have you ever been in a situation where your kids say “Dad (mom), let’s go playing!” but you cannot do that because you are busy doing things around the house?
If yes, chances are you are putting too much on yourself and too little on your kids. Make the list of all household chores and consider which ones you could pass to your kid.
Why should you do this? There are 3 main reasons:
- You give your child a possibility to feel proud of himself once he accomplishes the task.
- The child feels part of the family community and it is one of the most fantastic feelings!
- You are not overwhelmed by household chores yourself and thus you have more time to spend with your kids!
Don’t forget to teach your kid how to do the task! Treat it as a 3 step process:
- 1 step. Show your kid how you do the chore (e.g. sort the laundry). He can watch it and ask questions.
- 2 step. Ask your kid to do the chore (sort the laundry) but watch him doing it. Help him, if needed.
- 3 step. Let your kid do the chore (sort the laundry) without your help.
If your kid needs an encouragement to do the assigned task, use the “when-then” rule. E.g. when your kid sorts the laundry, then he could watch TV.
3. Encourage your kid to earn additional money
If your kid wants to buy something but she does not have enough money, ask her: “How could you afford buying it?”
The key word here is “how”. It encourages your kid to think of ways to earn more money. E.g. she could sell lemonade or sweets to neighbours or play the violin at school. The more you encourage your kid to think in terms of “how”, the more free she will be in the future.