by Charlene N.

Created on: July 03, 2007   Last Updated: April 24, 2012

Before you ask how much allowance to give your child, you need to ask what is the purpose of the allowance. If it is to give the child spending money, then base it on how many candy bars he can eat before getting sick. If you want allowance to teach the child money management, the habit of budgeting and saving, then you should give a generous allowance, based on his age and what you expect him to do with the allowance.

In the beginning, allowance should teach a child (1) the value of money, (2) how to be accountable for how money is spent, and (3) instill the habit of saving. You will do this with a modest allowance that will allow the child to put 1/3 to 1/2 of his money into savings and still have enough to buy a few treats or a small toy. You will buy the child a bank, a ledger and a wallet. Every month, when he gets paid, he writes down the amount he got paid in his ledger. He then takes out the required savings portion of his allowance and puts it into his bank. The remainder goes into his wallet for spending. Every time he spends, he is to write it it in his ledger and subtract it so he has a running account of what is left in his wallet. Before he gets paid his allowance the next month, he must show that the ledger amount matches what's in his wallet.

Later you will want to add the lessons of (1) giving to charities and (2) budgeting to pay for needs before wants. You will do this by requiring the child give tithe or donate a portion of his allowance to the needy or a charity and make him responsible for buying some of his clothes, school supplies and other necessities.

Before making him completely responsible for buying necessities, we have an intermediate step. In his middles years, between age eight and 12 or 13, I tell my child that I have $200 set aside for school clothes. With that $200 I expect him to choose X number of shirts, pants and socks. I set aside another $100 for school supplies and other necessities. He must get everything on his list of necessities and stay within budget.

When the child is a teenager, tell him that you will buy him one school outfit, a coat and shoes. The coat and shoes will either be your choosing or you can set a limit on how much he can spend and he can buy anything he likes within that limit. Then have him responsible for buying the rest of his school clothes and school supplies. Increase his allowance to cover the costs of his added responsibilities.

Just as we can earn more money by working overtime or taking a second job as parents, we also have extra chores that allow our children to earn extra money. These might include big yardwork or house repair jobs, waxing the car, big spring cleaning projects. This makes a direct link between labor and income and teaches them the incentive to work harder in order to earn more. But the saving, giving and accountability rules apply to the extra money as they do to the allowance. After all, the government still taxes your overtime paycheck. Extra money is still not trow-away money.

In a few years my children will be on their own, answerable to only themselves and their creditors for what they do with their money. Hopefully, the lessons of having an allowance will have prepared them and given them the skills and habits of good money management.

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