As your children get older, even interest earning will have its limitations, because it won't teach them to budget for themselves. The best way to do that is to give them an allowance and make them learn to use it wisely. Generally speaking, this is appropriate for teenage children and is most often used to pay for things which, up until now, you have been paying for. Well, you still are, of course, but they're making the decisions now.
Clothing is one of the most common forms of allowance. You assess how much you spend on clothing your children, and give them the money to spend on clothes as they wish. This is a great way to teach your children to look after their own money, and can be used as they get older for all sorts of other things than clothes– music, cell phone, going out, movies– in fact most things that they want and you're paying for at present.
There are a few things you need to take into account here (or should I say "make allowances" for?):
- You and your child need to be absolutely clear what the allowance covers. Are they supposed to pay for their own school uniform, sports gear, ballet outfit, and so on, or just leisure clothes?
- If you want to make any restrictions, agree on them clearly in advance with your child; for example, the clothing allowance can't be spent on low-cut tops, or the going out allowance can't be used for alcohol. Think these through carefully before you set up the system, or you'll rightly have an argument on your hands if you try to impose new conditions later.
- Agree as to what happens if there's allowance leftover. Is your daughter allowed to spend less on clothes in order to go overboard with a cell phone bill? Generally speaking, this ought to be fine as she's learning to prioritize her own money, but you might want to agree on specific items of clothing she must buy, or a maximum amount of time spent on the phone (good luck with that one).
- Your child is going to take a while to learn how to budget, and will need your help. You can't just hand the money over and be done with it. To start with, make the allowances little and often. If you give your 15-year-old daughter a year's clothing allowance in April, she'll probably freeze next winter with no money left to buy anything warm. Give her a quarterly allowance and talk through with her what she thinks she'll need to buy. As she gets older you maybe able to extend this to six-monthly or yearly. And maybe you can go shopping with her the first couple of times. An allowance for your child's cell phone might start off being monthly, and again you can talk through with your children how they'll make it last.
- If they run out of money through bad management and you bail them out, they'll learn nothing. So don't bail them out if you can possibly help it. If you have to, make sure it's something they won't want to happen again. For example, if your daughter is freezing come November and has no money left, buy her a cheap, clean, serviceable but not very fashionable secondhand coat from a charity shop. She won't let that happen again.