How an allowance for kids teaches financial lessons for adulthood

Educating children about money goes well beyond knowing how many quarters are in a dollar. You also can teach them that money represents something that can be traded for other things, like using it to buy something they want or receiving it for doing a task.

Young people who learn about financial literacy and responsibility can build on these foundations as they grow, and use these strategies long after they leave home.

A popular tool for introducing the basics is offering an allowance. Not all parents choose this approach, and no one should consider it a requirement. But if it makes sense for your family, it can show kids how money plays a role as they set and achieve personal goals.

An allowance is a sum of money you give your child on a regular basis. How you roll it out is entirely up to you. For starters, it's helpful to make some key decisions:

There's no "best" age to start an allowance. But you probably want to wait until your child is at least old enough to understand the purpose and value of money. Often, that's around age 5 or 6. But some parents start later, when their kids have more opportunities to make independent purchases.

How often will you give the allowance? Weekly? Monthly? On the 1st and 15th of the month, when you receive your own paychecks? Choose a schedule that suits your situation.

If you don't often have cash on hand, you may want to open a bank account for your child and set up automatic transfers. That can keep allowance payments on schedule—and provide your child with a debit card to make purchases.

Will you tie allowance to chores, grades or other accomplishments? Or will you give it without requirements? Some parents appreciate how an allowance can motivate kids and demonstrate that hard work earns rewards. Others want their children to do schoolwork without monetary influence—and to view chores as a responsibility that comes with being part of the household.

How much will you give your child on allowance day? Will it be a fixed amount? Or will it vary, depending on tasks completed or goals met? If you have multiple children, will you give them all the same amount? Or will you base allowances on each child's age?

As a starting point, you might consider the average allowance by age—perhaps a weekly payment of roughly $1 per year of the child's age. For example, 10-year-olds often receive around $10, while 16-year-olds get about $16.

Whatever amount you choose, make sure it fits your family's budget. And think about how you expect your children to use the money. Will they start covering expenses you previously paid for? Clothing? Entertainment? Car insurance? As you determine allowance amounts, consider the scope of financial responsibilities you expect your children to bear.

Once you've established parameters and have begun providing an allowance, it becomes a tool that can foster financial responsibility. Your kids can hone budgeting skills, explore avenues for generosity and develop other healthy money habits.

An allowance teaches children to manage money on a small scale. Kids can decide whether to spend their entire allowance each week on inexpensive items or save until they can afford something more substantial. Weighing such choices teaches kids to prioritize and sacrifice. That prepares them for larger purchase decisions down the road.

An allowance also helps children recognize opportunities to share, save and spend portions of their allowance. You can encourage this practice by directing payments into three separate accounts:

• 10% of each allowance payment into an account earmarked for giving
• 20% into a savings account
• 70% into a checking account

Or, you can give your child a lump sum each week and encourage them to choose how much to save and how much to contribute toward causes or organizations they care about. This also could be a good opportunity to model your giving strategy as a family.

Helping your child save money is an excellent way to teach the benefits of compound interest. Emphasize that saving at a young age can result in significant gains by the time they want money for college, a home or retirement.

Older kids also might want to explore investing. You can open a custodial brokerage account for your child so they can buy stocks, bonds or mutual funds and learn how markets work. If your child has taxable earned income, you also can open a custodial IRA—a retirement savings account with tax advantages. Your child can make contributions, but you (or another adult) must manage the account until your child reaches legal adulthood (usually age 18 or 21, depending on your state).

An allowance creates natural openings for ongoing conversations about personal finances. So talk to your kids about developing a relationship with money that aligns with their values. Help them differentiate between their needs, wants and wishes. And—especially if they plan to pursue college—consider introducing them to a Thrivent financial advisor. Having another adult in their corner now may help your kids understand—throughout their lives—the value of professional financial guidance.