If you have a teenager at home, you’ve probably given them $20 for a night at the movies or even more for a weekend road trip.
But think of an allowance as a teachable moment. Instead of just handing over $20 for a movie night, consider giving them a lump sump that can last six months or a year. That way, your teen learns how to manage money over an extended period of time.
The problem with weekly or even monthly allowances is that the cash simply comes too often. If your kid blows hers, she just has to wait a little while to get more. Less frequent lump sums, on the other hand, can teach teenagers how to plan and save for future expenses—two crucial habits they’ll need to get ahead financially.
Adults who plan ahead for large, irregular expenses are 10 times more likely to be financially healthy than those who don’t, according to a study by the nonprofit Center for Financial Services Innovation. Those who have a regular savings habit are four times more likely to be financially healthy.
Lump sums can teach teens the skills needed to develop those habits, said Ron Lieber, a personal finance columnist for The New York Times and author of the book “The Opposite of Spoiled.”
Lump sums “train and test teens in self-restraint, in anticipating medium-term needs, in telling the difference between wants and needs, and in setting goals and priorities,” Lieber said. “If you don’t have more money coming for a while but a larger-than-usual pile in front of you, there will just be that many more and bigger tests of your will.”
So use lump sums to your advantage. There’s no better teacher than experience, and money management experience at a young age can last a lifetime.