This week, over at The Simple Dollar, Trent Hamm wrote about how he handles his three kids’ allowances in the post “Segment Their Allowance.” It’s part of his “365 Ways to Live Cheap (Revisited)” series.

Trent doesn’t make his kids’ allowances dependant on anything (like chores or behavior). They receive a certain amount each week, dependant on their ages, and are paid in quarters. After they turn 4, they have to start putting away into different buckets. They have to put at least one quarter a week in each bucket and then are free to use the rest of the money as they choose.

There are 4 categories Trent uses: spending, saving, investing, and giving. The categories are pretty self explanatory. Spending can be used immediately on anything the kids want to buy. Saving is used to save for something bigger and more expensive down the road. Investing money is invested for use when they grow up. And giving is money that is donated to a charity or cause of their choice.

Regardless of how you handle the amount of money your kids should get for an allowance and why, we think this is a great idea. Many people who were never taught how to be responsible with money as a kid make financial mistakes as adults because they honestly don’t know any better. If you learn at age 5 that you can’t spend $1 on a candy bar unless you’ve already put 25¢ in your saving jar, and continue on with that lesson into your teenage years, it seems much more likely that your 25 year old self will be less likely to spend $30,000 on a new car with no money in the bank or a retirement fund.

Of course, that’s not to say someone who learned this lesson as a child will never make any financial mistakes as an adult. But they may be much more likely to make decisions responsibly.

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.
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