Allowances are a good way for children to learn to make choices and plan ahead. They can also help reduce the tension when children always ask for treats and toys while shopping. Allowances give children the responsibility of deciding what they can afford to buy. And they help children learn to spend money wisely, save for future goals, and make better choices.
Experts agree that allowances should not be tied to household chores. Instead, explain to your child that each family member has certain jobs to do as a member of the family. Also, each family member gets a share of the family income as an allowance. Keeping the two separate creates opportunities to learn about responsibility and good money management.
Many of these opportunities are missed if allowances are tied to chores. Children may refuse to do anything unless they get paid for it. Then, they miss the opportunity to learn about helping others and doing their fair share. Or children may decide they don't need to do chores today because they don't need any money right now. Then, they miss the chance to learn the value of responsibility. Children may simply choose not to do their chores, which results in their not getting the allowance. Then, they miss the opportunity to learn to make good choices about that money.
I am not suggesting that children should "get away" with not doing their chores. But there are many ways to deal with failure to do a chore other than taking away a child's allowance. The children's responsibility to do their fair share of the work is important, whether or not they are getting "paid" for their effort.
As soon as children start to make regular requests for money, parents should consider an allowance. If children are old enough to count, can tell one coin from another, and know that money is used to buy things, they can learn from having money of their own. For preschoolers, the allowance should be very small - just enough to buy a small toy or candy bar at the grocery store. Since young children have a limited concept of time, a smaller amount paid twice a week is easier than having to wait a week for the next "payday". School-age children can be paid once a week. Teenagers might be paid every two weeks or once a month to help them learn to manage money over a longer period of time. Once children have an allowance, the answer to requests when shopping is easy. Parents can just reply, "You can buy it with your money."
Base the amount of the allowance on the child's needs and what the family can afford. Increase the allowance periodically, as the child's needs increase. You might want to have older children keep records of what they spend for a few weeks, to determine an appropriate amount. Try not to supplement allowances when additional "wants" arise. If you provide extra money, children will not learn to live within their "income."
Be sure to specify what expenses the allowance will cover. For a school age-child, the allowance might include lunch money, school supplies, donations, and some spending money. Older children can have greater responsibility as they learn to manage their money. For young teens, the allowance can include Christmas gifts, school field trips, and other periodic expenses. The teens will have to manage their money wisely to meet these longer term needs. For example, they may need to set aside a few dollars each week so that they will have enough money for Christmas gifts. An older teen's allowance can cover almost all expenses, including clothing, transportation, and spending money.
If children want to earn more money, they can take on extra responsibilities, such as yard work or painting that parents would usually hire someone outside the family to do. In this case, children should be paid fairly for their work, provided the work meets acceptable standards.
Experts do not recommend paying children for good grades or any other positive behavior. Paying children for good behavior robs them of the chance to feel a sense of satisfaction from doing what is right.
Children can be encouraged to save their money if they are hoping to buy a more expensive item. Or parents can offer a loan with a promissory note, payment schedule, and perhaps even collateral. Teens can earn extra money by doing odd jobs for neighbors, babysitting, or getting a job. If children or teens do earn additional money, think twice before you reduce their allowance. A reduction in allowance only penalizes their initiative!
When giving your children an allowance, remember that they need to make mistakes in order to learn. If you tell them how to spend every penny, or set a lot of rules, they won't have as many chances to make decisions about their finances. Let them make mistakes while they are young, when the price is small. Then, resist the temptation to rescue them from the consequences of poor decisions. Having to live with your poor decisions provides great motivation for making better choices the next time around (even for adults)!