Ultimately you are going to do what makes sense (no pun intended) for you and your family but below are helpful answers and tips to some of the questions you might be having if you're contemplating giving your child an allowance. According to Janet Bodnar, Kiplinger’s Personal Finance executive editor, and author of four books on kids and money including, Dollars & Sense for Kids, "an allowance is the best money management tool that you can give your kids." She claims that kids will spend unlimited amounts of money as long as it’s yours, but as soon as it’s their money that’s on the line, it’s a whole new ball game.
So when should you start? For an allowance to succeed in teaching kids how to spend responsibly most experts suggest that parents should establish a weekly payout usually around six years of age or first grade. Any younger and they don’t really have a sense of what money actually is and they can't think in abstract terms. It’s not until they reach the first grade that they start to learn about money — that four quarters equals a dollar, for instance — that they can begin to understand the concept and figure out how much that dollar will actually buy them.
Next big question - How much do you give each child? Every family is different and you should do what feels comfortable, but as a guide the experts say an allowance about half your child’s age is appropriate. For example; A six year old would receive $3 a week; a ten year old gets $5. If that much money raises your eyebrows, Bodnar insists that not enough actually defeats the purpose of an allowance. “If it’s too little, a child can’t make any real decisions on how to spend it,” she says. And spending it is how a child learns how to manage it.
Once a dollar amount is in place and what expenses are expected to come out of it (if any), parents should essentially back off and set the kids free, allowing them to make their own discoveries, and many times, mistakes. According to Paul Lermitte, a registered financial planner and author of Making Allowance: A Dollars-and-Sense Guide to Teaching Kids about Money, you want them to learn to become savvy consumers, and one way is through action. Experts all agree that unless your kids want to purchase something that you find objectionable (like a violent video game) or unsafe (like an air riffle) butt out. Lermitte believes you have to let them make choices.
Apparently, when it comes to money management, failure is a good thing — it teaches the kids to be smarter consumers the next time around. The experts do, however, say that it’s perfectly fine to give an opinion on the impending purchase — after all it’s your responsibility as a parent to put in your two cents — but the decision to buy or not to buy should ultimately be up to your child. According to Lermitte, it’s all about confidence building. “You’re teaching them to make good decisions by making some bad decisions that really don’t cost a lot of money,” he explains.
Next question - Should you tie it to chores? No. Think about it; do you want your child expecting to get paid for every task you ask them to do?? Assign them household duties at age 2 or 3 and expand them as they get older. If they fail to do them, give them a consequence tied to the action (such as taking away his toys if he doesn't pick them up).
In an era of “plastic money,” designer clothes for babies, and $200 gym shoes, it’s more important than ever to instill good money values in our kids — to teach them to use credit responsibly, look carefully at each and every purchase, and to save for their futures. After reading this, I can't wait for the day when my kids cry, “Mom, can we get that?” I'll have the perfect answer. “Sure. Save your allowance.”