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Giving Your Child an Allowance: When and Why

Weekly Earnings Can Help Children Learn to Manage Finances

When LeighAnn Brady's 6-year-old son Johnathan told her he wanted to start saving money to buy a high-priced video game system, she thought it would be the perfect time to introduce an allowance.

“He gets a sliding-scale amount, anywhere from a quarter to $2, depending on what the chore is," Brady says. The harder the chore, the higher the pay, she says.

In this day of "gimme-gimme-gimme," some parents say an allowance is just the thing a child needs to start learning and accepting financial responsibility.

Deciding When to Start an Allowance

“Whenever your child begins to show an interest in money is the perfect time to have a family discussion about earning an allowance," says Dr. Joe Taravella, licensed clinical psychologist and supervisor of pediatric psychology at NYU Langone Medical Center.

Melissa James and her husband started their son's allowance around his 6th birthday when he demonstrated math ability. Preston receives $5 per week, says James, from which he must deduct 50 cents for “taxes," and another 10 percent for his church tithe.

He's free to spend the rest of his money how he'd like, but James makes sure Preston learns valuable concepts in the process. When he had his eye on a new bingo set, for instance, James guided him on considerations such as shipping cost, item reviews and checking details like dimensions before making his purchase.

“Preston is learning to be smart with his money and to understand the value of a dollar," she says.

What an Allowance Should Accomplish

Value and effort are what matter most to R. Joseph Ritter Jr., father of four. He says he believes in rewarding children for doing chores as well as for making smart decisions.

“When tied to chores, tasks or helpfulness, rewards teach children the value of hard work and the value of their ability," says Ritter, a certified financial planner.

But some feel an allowance should not be directly connected with chores.

“You can pay children for extra or difficult chores like shoveling snow," says financial planner Lori Atwood, “but if you tie regular chores to allowance, they won't get off the couch unless you pay them."

Charting Chores, Charting Success?

Dr. Taravella says that while there are several schools of thought on the topic, “the best way to develop a long-lasting work ethic in children is to attach work with pay and utilize the chores-for-money approach."

Pegi Burdick, a Los Angeles personal development coach, advises parents to create a chores chart that displays the value of each task, and then stick to it.

“Allowances are worthless unless they sit atop boundaries and parents are consistent," she says. “Tally
 it every Sunday, so the process has a predictable system; that's
 their payday."

Erik A. Fisher, Ph.D., author of “The Art of Empowered Parenting: The Manual You Wish Your Kids Came With," takes it one step further.

“Everything my daughter does in a day is on the chart. We start at completing 55 percent of tasks on the list in a day to get a daily reward, then four out of seven days to get a weekly reward, which is her allowance," says Fisher. With this system, he says, it's important to increase expectations progressively: Over time, 55 percent grows gradually to 95 percent, and four days per week rises to six.

This way, he says, a weekly reward prepares them for a future paycheck.

Allowance as a Life Lesson

In some households, an allowance is actually a lot like a real-life salary.

“We give our kids a 
monthly allowance to pay for their own expenses," says Tracie Shroyer, author of “Investing in Your 401k Kid: From Zero to Little Financial Genius in 
Five Easy Steps."

“We give kids ample time and money to
 practice other things like sports and music," Shroyer says. "Why shouldn't we give them the opportunity to practice with money so they are smarter than we were when they finally 
leave home?"

So, How Much Should You Give Them?

According to Danny Kofke, the author of three personal finance books geared toward parenting, a dollar a week is plenty for kids ages 3 to 5. As your children get older, he advises you boost their allowance commensurate with their responsibilities.

“When they turned 7, the chores my daughters had been doing were still expected of them, but they could earn a 50% raise by vacuuming and cleaning their bathroom," he says. “My goal was to show them that if they work harder than others, they will usually be rewarded."

Teaching Kids to Use Their Allowance Wisely

Kathleen Lynch uses a visual reminder to motivate her sons to manage their money. She gave them a piggy bank with three separate divisions for saving, spending and giving.

“We've tried to teach them that with every payment, they should save one-fourth, give one-fourth and spend one-half."

Dr. Taravella suggests another division as well: One earmarked “Family."

“When there's enough money collected in the 'Family Jar,' it's time to plan for a night out to dinner, the movies, getting dessert, etc."

When your children reach age 9 or 10, he says, allow them to open a bank account and learn about interest – and later, even investing.

Dr. Fisher agrees that the process, from beginning an allowance to its advanced management, should be viewed as a learning – and growing – experience.

“You are helping your children learn to spend and save for the rest of their life."

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