For kids old enough for an allowance, dividing their money three ways is a method that enforces the value of saving and sharing, as well as the fun of spending. We've been using this method for many years, ever since our oldest child turned five (more here on how we determine allowance amount). We now use it with both kids. We divide not only their allowance money, but all money the receive in three jars, each with a different purpose. Here's how it works:
1. The Spending Jar – This is the money they get to spend, no questions asked. Sometimes they make poor judgments, but they're learning from their mistakes. As a parent, you need to bite your tongue and look the other way when you see them spending in ways you don't agree with. It's the best way for them to learn, and it's better to learn those lessons now than when they're out on their own.
2. The Saving Jar – This money is off-limits for spending and gets put in a savings account set up in the child's name. This helps drive home the importance of automatic savings. It also helps get them involved with banking at an early age. Plus, kids love getting their statements in the mail and seeing their money grow.
3. The Sharing Jar – This is the money used for church offering, to purchase a gift for Santa anonymous at Christmas time, and to donate to school fundraisers that come up. It helps emphasize the importance of giving to those less fortunate.