Suppose as a 12 year old, you got 300 rupees from you parents to buy snacks for a picnic.
You go to a store and pick out all the packets you'll need and the bill amounts to 250 rupees.
Now, you have 2 options. You can either buy that extra chocolate or keep that amount for future use.
As a 12 year old, you might want to buy that chocolate and spend that money. However, your 22 year old self will want to advise that child to save that money.
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We are taught at a young age that we cannot just spend our money carelessly, but must instead divide it up into three categories: spending money for necessities, spending money for "wants," and saving. In this approach, we have money set aside for future use as well as cash available to spend on both requirements and wants.
As an adult, there are many various methods that are presented as reasonable ways to divide our money, and honestly, any of these divisions (70/20/10, 60/30/10) can work well for us if we can manage to adhere to those constraints.
The 50/30/20 rule
The most prevalent or well-liked financial allocation rule among adults is to allocate 50% of income to needs, 30% to wants, and 20% to savings. Experts believe that giving your kids the same allocation for their allowance is a wonderful way to start instilling good financial habits in them at a young age.
If you start establishing this financial habit with your child's allowance, say at age 11, they will be more likely to pick it up and keep it up as they get older, at ages 18, 28, 38, and beyond. One way to put this technique into practice is by offering your child three transparent jars—one each for wants, needs and saving. This kind of money management enables kids to actively plan for their present and future desires.
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Through these methods, they are discovering that there are valid reasons to divide their money upon receiving and to set aside a portion for the future. Every week, you should spend less than you make because doing so will leave you with extra cash for later usage.
The key to having this discussion about adopting an adult financial allocation system from a young age is to figure out a way to help your child develop good money management skills early on, which they may hopefully carry over into their future as financially responsible adults.
