As adults, the way we deal and think about money today is what we were taught at a much younger age. We all learned about money from our parents, either directly or by observation.

Those lessons influence our financial decisions our entire life, whether we are aware of it or not. Therefore, it is crucial for us to teach our children good money management skills to help them build better financial futures of their own. Money management might sound like a big concept to a young child, but if it’s broken down in a simple way, it can be learned at a very early age.

One way to teach children how to manage money is by giving them their own and educating them about the optimal way to use it.

As a money coach, the rule of thumb that I recommend is to give your child a weekly allowance equivalent to his age. For example, you could give your 5-year old child $5 each week.

What age is ideal to start? Between the ages of 5-6 is a good time since your child is familiar with the numbers and has acquired some basic arithmetic notions (simple addition and subtraction). Also at that age, their purchase demands become more consistent, therefore it is ideal to start setting limits on how many “wants” they can get.

It is also important to explain to your child that, the same way adults have to work to earn money, he/she too needs to do some “work” (meaning chores). Tying the money to work makes them realize that money is not free, there’s an effort involved to receiving this money. Depending on the kid’s age, house chores can vary from making their bed to cleaning up their bedroom, helping with snow shoveling or helping younger siblings with homework.

Once the child receives his allowance, he needs to understand that it’s not all going to be spent on the first toy he sees in the store. As a parent, it is essential to explain the concept of delayed gratification. In simple terms, this could sound like “you could buy that puzzle today, but if you really want that big truck you saw the other day, you will need to save your money for 4 more weeks”.

In general, there are 3 areas towards which the allowance should go. An easy way to remember them is the abbreviation “3S”:

Save some: By saving a portion of the allowance, the child will learn that some items cost more and therefore, he needs to be more patient before acquiring them. It also teaches the child to think and plan longer term, and not just in terms of what he wants today.

Spend some: Setting expectations for the spending portion is crucial. You have to clearly pre-determine with your child what expenses you expect him to cover with his allowance. Depending on their age, it could be lunch money or afternoon treats; for teenagers, it could cover some of their clothing or movie outings. However, regardless of the child’s age, there should be a portion of this “spending” money at the kids’ total discretion. This will teach them decision making and will arm them with a sense of responsibility and self-confidence.

Share some: Even if it’s only a small amount, there has to be a portion to share with the less fortunate. For example, the child could accumulate those little sums over the course of the year and donate them in a lump sum to a charitable organization (even $0.75 cents/week will amount to $39/year). It is a valuable way for a parent to teach personal values through money by showing their child how to share his good fortune.

Lastly, when children first start receiving their allowance, they don’t have a clear concept of what it can buy them. “Can $1 buy me a doll?” “Can $20 buy me an ice cream?” As adults, we deal with money every day and we know what amount we approximately need to buy a certain item. That’s because we are familiar with the concept of “purchasing power”. However, when we travel to a foreign country and we start handling another currency, it takes us a few days to adjust our thinking to the local economy. The same happens with a child who has never managed money on his own. Children need to gradually understand how much things cost. One way of doing this is to show them the different price tags when you take them grocery shopping or to the mall. Even if your child will not buy anything that day, he still needs to understand how to compare prices and have an idea what his weekly allowance can actually get him.

Guiding your child with his financial decisions today is the best gift you can give him for his future financial life. A strong basis is crucial to building a healthy relationship with money. So remember, it is never too early to learn about managing money!

About the Author:

Lama Farran is a personal finance coach. She earned a Bachelor of Commerce and a Graduate Certificate in Finance from McGill University, followed by a Master’s degree in International Accounting and Finance from the London School of Economics in England. She has also completed a series of personal finance and investment courses through the Institute of Canadian Bankers.


Unlike a traditional financial planner, she does not sell any financial product. Instead, she guides her clients on their path to financial stability and empowers them with the knowledge required to take control of their personal finances. Through one-on-one coaching sessions, she uncovers their spending habits and establishes realistic budgets that fit each client’s unique lifestyle.


For More information please visit: www.maxworth.ca, on Facebook at: www.facebook.com/MaxWorthMTL, or call Lama directly at (514) 717-1976