A kid’s allowance is a great tool for teaching kids money management, but creating a spending plan, or allowance budget, with your child enhances the learning. Follow these ten steps to create a spending plan both you and your child can live with.

  1. Use the Spending Plan Worksheet to get your thoughts on paper.
  2. Help your child make a list of expenses. Try not to pass judgment on choices (it’s your kid’s money, after all), and don’t forget everyday expenses such as club dues, MP3 downloads, and bus fare.
  3. Classify each item on the list as a need (an unavoidable expense such as lunch money) or a want (a new purse, a video game).
  4. Assign responsibility for each item on the list. Who will pay, you or your child? Explain that responsibility means that your kid will have to keep track of expenses for each item assigned to him or her.
  5. Brainstorm possible unexpected expenses such as a birthday party gift or replacing a damaged backpack. Decide whether you want to set up a fund to cover such expenses.
  6. Plan for large purchases such as summer camp tuition, athletic equipment, and optional school-related items (a yearbook, a class ring). Use a school calendar to note anticipated expenses.
  7. Talk about savings. Buy a piggy bank for young kids, or open a savings account and teach your child how to deposit money regularly. Talk about the difference between short-term savings for small items such as snacks and longer-term savings for major purchases.
  8. Talk about charity. Share your values about giving of time, talents, and money. Talk about how kids can help others, for example, by spending some of their allowance to buy items for a local food pantry or by putting their change in an animal shelter collection container.
  9. Write down the plan, sign it, and date it.
  10. Evaluate the plan after a month or so. How is it working? What has your child learned from it? Is there anything he or she wants to change? Note: Once your child's budget is up and running, check it yearly at the beginning of the school year or on your child’s birthday to identify unexpected expenses and make necessary changes.