A lot of parents wonder how to teach their children about managing money. There are some ways that you can help them learn to save and spend money with the allowance they receive. There are three ways that you can go about giving allowance, each with its own perks and drawbacks. These ways are by giving cash, using a prepaid card, or getting a checking account.
Cash
This is the most common way of giving allowance to children because it usually happens when kids come up needing money to go out. Giving kids cash provides a tangible way for them to see the money that they are making. A very basic rule in psychology is if you can touch it, it is real. This teaches kids that money is real and that when it is gone, it is truly gone. Having the cash in hand while buying something really teaches kids its value.
The negative side of dealing with cash is that it is easily damaged and lost. Plus, there is no paper trail to help track expenditures. This is vital when teaching your teenagers how to manage their money, control impulse buying, and teaching responsibility.
Prepaid Card
There are a lot of positives when dealing with these cards. Most believe that cards are dangerous weapons, but there is no denying that one day your child will most likely have one so you should teach them how to use it wisely. Money can easily be loaded onto the card and all expenditures tracked. This way you can go over all activity with your child and talk about priorities. And since there is no credit line, spending is limited to what is actually there. Another benefit is that you can load money on the card in a hurry if there is an emergency. This is a major aspect that can give parents peace of mind.
Checking Account
The two best things about this form of money management are that there is a major paper trail and it takes longer to spend money. It is easiest to teach teens how to balance their budget with a ledger like those provided in a checkbook. This is because there is an ongoing record kept which helps your child from overspending. They also learn very quickly not to over draft their account or they will have to pay the penalty. This teaches a lot of responsibility.
Carrying around a checkbook is bigger than any other form of money. This makes it very inconvenient to carry around. Girls don’t mind this as much because they have a purse, but guys have a harder time since they only usually use their pockets for carrying.
Weston Terry is a consultant with Plastyc, Inc., the company behind the UPside Visa Prepaid Card. He enjoys helping other with their financial needs. He also enjoys hiking and traveling with his wife and kids.