by Joan Inong

Created on: February 20, 2009

When kids are taught how to balance their spending and saving, it becomes an important asset that they'll appreciate for the rest of their lives. You may think that it will be a difficult concept to convey, and perhaps an even more difficult practice to follow, so here are some tips on how you can make it easier for you and them.

1) Allot allowance

Allowance is perhaps one of the best ways kids learn the value of money, especially if the allowance isn't extravagance. When I was young, my parents allotted me ten dollars a week. It was supposed to be used for food, but since I was already eating at school, I decided to save it. So, I saved it, and I was able to use it however I chose. Each year, my allowance rose until my parents decided to cap it at $20 per week. This was actually perfect for me, and I saved each dollar. When I had saved enough to count a couple hundred dollars, I then learned how to spend my money wisely. So, children do learn how to value money when they actually know that it means something to them.

2) Two accounts

Just as you may have a savings and a checking account, give your kids the chance to have both, though they might not use a real bank. To do this, you can buy a kids-oriented "bank." They actually have one for sale that looks like a register and counts the money as it is put in. There is also a fake "ATM" or "debit" card. Teach them what the meaning of each account is. Moreover, if you want to teach them the difference between these two accounts the old fashioned way, put their "savings" money (which is an amount determined by them) into the bank under your name but in an account of their own. Let them keep the remaining money and tell them that is their "checking" account. If needed, tell them that they must put in at least 1/4 (though 1/2 is better) of their total month's allowance every month into their savings account. If they're going to start saving, this is the way to do it.

3) Prioritize

Once you have set up their "accounts," they can then learn how to use their checking account money wisely. Allow them to decide for themselves what they will spend their money on, but give them occasional guidance about what is good or not good to buy. For instance, do they want to splurge on a new video game? Tell them to make sure that they really want it, and then do some calculations. If they get a $10 allowance per week and the video game costs $50, ask them if it is really okay with them to spend more than a month's worth of their allowance. If they say yes, make it a point to suggest that next time they might have to hold off on buying more video games.

These are three easy ways for kids to learn how to balance their spending and saving. And, as they grow older, they will take the values and lessons they learned from these methods and use it in their real-life transactions. They'll turn into money-savvy and responsible adults.

Learn more about this author, Joan Inong.
Click here to send this author comments or questions.