Family Finance Guide

Allowance Do's and Don'ts

Allowances can be downright confusing: what amount? How often? How do you know if your child is ready to receive an allowance-and if it's time to call it quits? We talked to Amy Nathan, author of The Kids' Allowance Book and Adriane Berg, co-author of The Totally Awesome Money Book for Kids, to get the scoop on the best allowance advice.

• Do be consistent, says Adriane Berg. An allowance is a way to teach your child about handling money that comes in regularly. "You have to stick with it, otherwise it defeats the purpose," she says. This means you decide on how much, how often, how it can be used and, most importantly, how it's earned.
• Don't forget that you'll have to make adjustments along the way, however. "Allowance is a work in progress," notes Amy Nathan. For example, commit to giving an allowance on a regular basis. However, if you find that weekly amounts aren't working for your family, make the switch to bi-weekly or monthly. (Consider moving to monthly amounts for older kids, so they learn how to budget accordingly.)
• Do help your child set up a savings account at your bank or credit union as soon as you start giving an allowance. This encourages good habits early on.
• Don't get hung up on amounts, says Nathan. "Some experts recommend these incredibly complex formulas based on factors like age, but that's just not necessary." It's one of those parental judgment calls that are based on your own income and attitudes about money, and your child's needs and abilities. (For a reality check, use this allowance calculator to see what the allowance you received as a kid is worth in today's dollars.)
• Do start an allowance when your child expresses an interest in buying things herself. Depending on the kid, that could be at age 5 or it could be at age 10.
• Don't continue with allowance once your older teen starts earning his own money at a regular part-time job. You may want to consider a quarterly clothing allowance instead.
• Do resist the temptation to withhold allowance as a punishment. "Money should be separate from discipline," says Nathan. Reason? If you cut off allowance for bad behavior, your child may think that she's being paid for good behavior-not the message you want to send!
• Don't make a habit of giving extra spending money in addition to an allowance-again, that defeats the purpose of teaching your child about money management. Save it for a special event like a family vacation. You may want to offer to match the amount that he has saved for the trip (of course, use caution if he's a hoarder!)
• Do try to give allowance in easy-to-break-down amounts. For example, if your child gets $5 a week, give it to her in dollar bills or quarters, rather than a $5 bill. This makes it easier for her to divide into amounts to spend, save and donate.
• Don't assume that simply giving a child allowance teaches financial literacy-you've got to periodically check in with your child and talk about how she's spending, saving and investing.

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