Billeater: Teaching Kids Money Management with the Total Allowance

If you really want to save money raising your kids, while teaching them lifelong lessons about money management, start them on a "Total Allowance."  This method of financial education puts control of spending in the hands of your kids. It's similar to the "sink or swim" method for teaching kids to swim.

What Makes a Total Allowance?

A Total Allowance works best when started in your child's preteen years. It's called a "Total" allowance because you provide your child with enough money to cover the total of all expenses he will incur during a given week. You might think that your 11 year-old is not ready for such a responsibility. But he will quickly learn how to mete out expenses to avoid over spending. In fact, he will soon learn that if he finds a way to save money in one area, he'll have more money for something else he really wants.

To make sure your child has enough money to cover the things he needs, you may wish to consider what weekly expenses he will come across. Add another 25% to cover clothing and entertainment, or whatever amount you feel best reflects costs in your area. You must reserve the right to veto certain purchases for safety or moral grounds, but otherwise, your child must be free to spend the money as he chooses.

It will take a little time for your child to adjust to this system. He'll keep asking if he can have toys or clothes. But when he hears you answer, "Sure, use your allowance," enough times, he'll stop trying to get you to foot the bill. It will also be amusing for you to see which items your child decides to buy anyway and which ones were ultimately not that important to him.

In the beginning, it's a good idea to instill a delay period of two weeks or so before allowing your child to make any major purchases. Most of the time, he won't want that jacket or new toy by the time two weeks have passed.

The Benefits of a Total Allowance

The monetary savings is obvious. You can rely on what you have budgeted and never have to worry about over spending when your child wants something. He'll have control over his own destiny. If he can't have something, it's only because he failed to manage his money properly to afford it.

Understand that the Total Allowance requires a total commitment. You cannot waiver. There is nothing wrong with buying birthday presents or the occasional treat, but never buy something your child has asked you for. Otherwise, he will never learn to control his spending. He'll just work at you harder until you give in again.

Expect it to take about two years before your child becomes truly financially responsible. If you can get these lessons in before he gets a drivers license, you may find a much more manageable teen on your hands. Your child will understand financial pressures and be more willing to accept some of the financial decisions you make that also affect your children.

Jessica Bosari writes for the money-saving site, Billeater.com. The site is devoted to helping people reduce expenses, save money and find great deals. Pay Billeater a visit for more money-saving tips!