Teach kids to manage money...with an allowance

Want your children to learn the true value of a dollar and equip them will life-long skills involving money? Try giving them an allowance. The majority of professional financial advisors agree that giving an allowance is a hands-on way to teach a child financial responsibility. Think that you can't afford it? Think harder.

The amount of money you give your child for allowance could easily replace (if not be cheaper) than the cupcake at the grocery store, candy bar at the gas station, handful of cheap toys on the way home from the store and stick of gum here and there and all the other small expenses that add up over the week. The concept is, if junior is paying for those items with "his" money, he will appreciate the actual item more, and learn the "value of a dollar". After all, personal finance is something they need to learn, but they don't teach it well at school. 

Giving your child an allowance...

• Teaches financial responsibility in a hands-on manner. Having their own regular income is an extremely effective way for children to learn skills in money management.
• Helps them understand the value of saving, and the concept that you can't always get what you want right away, but if you work toward it, you can achieve financial goals.
• Enables them to have a sense of responsibilty.
• Teaches them first hand exactly how much things that they desire cost, and to decide if they really need those things so bad after all..
• Allows children to make mistakes without any serious long term consequences.
• Will help them to appreciate the things they have, once they have paid for it with their "income". No matter who you are, its still easier to spend somebody else's money.  They'll treat their purchases with more respect

Allowances are a great way for parent's to take an active role in the child's education in a very hands-on manner.

At what age should I start giving my child an allowance?

That depends on your child's individual maturity level, regional difference, and your preference. Many people make the mistake of giving allowances when children are entering their pre-teen years. By this age they have already developed some sense of money, individuality, and personal taste (clothes, food, music, style, friends, etc.). A good rule of thumb is the first year or two your child is in school. They are away from you for a period of time during the school day by this point, and their skills in other areas are rapidly sharpening.

How much should I give? And how frequently?

Again, this is going to vary from family to family, and child to child. Obviously, the age of child should be a factor along with how long they have already been receiving an allowance. Be sure to leave a little wiggle room for mistakes to be made in the name of learning. Increments in allowances based on milestones, age and achievements are generally expected. One popular method is to give the child $1 per week for every year of his age, increasing that amount $1 per year. Another is to give them the same amount that his peers are getting. As for frequency, I have heard of families giving weekly, bi-weekly, and monthly allowances. Due to the impatient nature of children, weekly would probably be the most efficient to keep their attention. (As allowances are "learning experiences")

Use the calculator at Pediatrics.About.com to figure out an ideal rate for your child's age and circumstances.

What chores and tasks (if any) should be done in exchange for the allowance?

This is something you and your partner (if applicable) need to sit down and discuss. Some experts argue that the point of an allowance is to teach children lessons about money and financial responsibility, not pay them for work that should be expected as part of a household. If your child is doing a good job helping with the household duties already, there may be no reason to tie an allowance into chores and housework. On the other hand, if your child is slacking, teaching them the connection between work and pay may be ideal.

An ideal chore list would be composed of simple, yet necessary tasks the child is capable of doing without supervision. Some of these need to be adjusted to age (I.E.: A young child shouldn't be required to clean the restroom).Common tasks include...

• Daily cleaning of child's own room, making bed.
• Clearing the table after dinner
• Loading/Unloading dishwasher
• Taking out the trash as needed.
• Weekly thorough cleaning of restroom
• Cleaning pet messes every 2-3 days (Litter box, dog mess in backyard)

Other tips on allowance

• Sit down with your child and come up with a "Spending and Saving Plan". Most children want a special game or toy that is on the pricey side. Help them evaluate how they could save up for the product, and how much time it would take..(Example: Susan wants a baby doll that costs $45.00. She earns $10.00 per week. If she saves her money, by week five she will have enough to pay for the doll, with a little left over toward her next purchase)
• Discuss the kinds of things you child will be purchasing with the allowance.
• If a child is older, discuss the kinds of things you provide (medical bills, food and grocery costs, etc.)
• For additional learning opportunities, encourage older children to participate when you fill out taxes, calculate a budget, or pay bills.
• Suggest donating a portion of the allowance to a charity to develop empathy. Show your children a list of different charities and what they do. You may be surprised how interested a child will become.