How an Allowance Helps Children Learn About Money（2）
Paying children to do extra work around the house, however, can be useful. It can even provide an understanding of how a business works.
Allowances give children a chance to experience the things they can do with money. They can share it in the form of gifts or giving to a good cause. They can spend it by buying things they want. Or they can save and maybe even invest it.
Saving helps children understand that costly goals require sacrifice: you have to cut costs and plan for the future.
Requiring children to save part of their allowance can also open the door to future saving and investing. Many banks offer services to help children and teenagers learn about personal finance.
A savings account is an excellent way to learn about the power of compound interest.
Compounding works by paying interest on interest. So, for example, one dollar invested at 2% interest for 2 years will earn 2 cents in the first year. The 2nd year, the money will earn 2% of one dollar and 2 cents, and so on.
That may not seem like a lot. But over time it adds up.