Talking about money and finances is not something that comes easily in our society. As a result, we do not talk often about money with our kids. However, handling finances is a life skill, and by starting early we can help our kids develop this important skill.

One way to teach children about finances is by giving them an allowance. There is no right or wrong way to introduce the concept of allowance. More than anything, it depends on our own relationship with money. But an allowance can be a powerful teaching tool for the kids. It teaches them basic math, a sense of responsibility and a life skill of dealing with money.

Even though an allowance is very much value-based, there are some guidelines that most educators and finance coaches believe are fundamental and apply to all. But before starting an allowance system, it is helpful to assess your own relationship with money so that you are in a better position to pass on consistent money messages to your children.

Introducing financial skills is most effective with children between the ages of 6 and 14. These are formative years for the foundations of good money attitudes and habits. As parents, we should try to provide opportunities that gradually develop money skills from the basics to the more advanced. In general, these guidelines apply:

• The amount of allowance depends on your financial situation and value system. Some parents like to correspond this with the age ($5 per week for a 5-year old and so forth). Have an allowance system that resonates with your family values.
• Frequency of allowance depends on the age of the child. For younger children, a weekly allowance works better. As they grow older, make it every 2 weeks, and eventually make it once a month.
• Present the money at the same time each week, or each month for an older child.
• Be willing to let the child use the money without restriction.
• Be ready to point out mistakes, but do not bail the child out. Allow him or her to learn from the decisions they’ve made.
• Do not associate this as a method of punishment or reward. This is a tool to help teach money management.

For young children ages 5 to 7, an allowance introduces the basic concept of money. Do not make it very complicated. Keep it simple and work with coins and dollar bills and emphasize basic math skills of addition and subtraction.

Pre-teens start getting more independent. However, this is also a time when kids face tremendous pressure to follow fads and keep pace with their peers. While it is tempting to control your children’s spending decisions, instead give them your insight and advice. Be a good role model. Teach them the difference between needs and wants. Introduce the idea of saving—howthey can delay gratification to save a little longer for something they really want. Use allowance to teach the concept of saving, spending and also charity. Philanthropy helps develop empathy and awareness of others.

Teenagers can be introduced to the idea of managing their own expenses. Open a bank account for them. Teach them to set financial goals and budget accordingly. Underscore the issue of overspending, but let them learn from their own experiences.

Above all, be there for your children—to guide and to lead by example. As Thayer Willis, a wealth councilor, has said, “The most important lessons in life are caught, not taught.”

Lavina Nagar is a Certified Financial Planner (CFP) practitioner and founder of a financial planning firm, Maya Advisors, Inc. Her focus is on helping young parents with their financial planning needs. She can be contacted by phone (650.704.3074) or via email (lnagar@MayaAdvisors.com). You can also get more information on her practice on www.MayaAdvisors.com.

Image courtesy of Hope Hudson Photography

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