The perks of helping my kid learn about money and managing an allowance

little boy holding money in his hand

Most of us would agree that being money-wise and a good savings manager is a crucial skill for life, but this might never prove as true as when you become a parent. We all know how challenging it can be to navigate finances, and why it’s so important to raise money-wise children so they can be successful adults. But are preschoolers ready to learn about handling a small amount of money? Are there real benefits to doing so? And, what’s the best way for small children to learn about finances ?

Developmental and social psychologists have stated that a child’s first and intuitive experience of money is shaped by how it is managed inside the family. Also, frequently, their first encounter with personal money is through a small fixed allowance that is given to them periodically, usually granted that they have been on good behavior.

Beyond functioning as a reward system for helping around the house, giving a young child the responsibility of deciding what to do with their savings has its benefits. Receiving an allowance does influence spending behavior in school-aged children. For example, in 1991 researchers from the University of Toronto studied kids that were given 4 dollars, either in cash or as store credit, as an allowance and kids who weren’t. The children that didn’t receive an allowance at home spent more money when they received a credit card than when they received cash, while the kids that had experience with self-managing an allowance spent the same amount whether they received a credit card or cash. This effect was equally strong regardless of age, meaning that the 6-year-olds that had experience with an allowance were more sophisticated about money than the 10-year-olds that didn’t.


The four year mark is a good moment to start teaching your child about managing their finances. Here we offer some tips and insights into how you can use your child’s allowance to foster their understanding of cause and effect, patience, hard-work, generosity, and planning ahead:

  • Divide money for “saving”, “sharing”, and “spending” using 3 separate piggy banks or money-jars. Show your little one how to divide their allowance equally  into the three jars and talk about the use the money in each jar has. For example, the saving jar could hold money until a small toy can be afforded, the sharing jar can be used for donating for a cause that they like, or for helping a sibling or friend who is saving for something, while the spending money can be used for buying stickers.
  • Help your kid set a goal like buying a toy they want. Choose something that is not too expensive or they’ll get frustrated after a month of saving. It is normal for preschoolers to struggle with tolerating frustration, so help them build patience by setting an attainable goal with a small timeframe.
  • When a goal is reached, remember the small steps it took and celebrate the patience and the importance of working and waiting.

As an added value, teaching your child about money has many developmental perks! It will help their cognitive development and exercise their abstract reasoning, conceptual thinking, and problem-solving skills, as well as the socio-emotional aspects of experiencing and tolerating delayed gratification and sharing with others, among other things.

If you like the topic and want to learn more about your child’s math skills, you can check out these links:

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