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How to set children's allowances

It's an art form, but one that gives them money lessons for life

By Gary Foreman

The New Frugal You
New Frugal You columnist Gary Foreman
Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and newsletters. He writes "New Frugal You," a weekly Q&A column about frugal living, for CreditCards.com

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Question for the CreditCards.com expert

Dear New Frugal You,
My two boys are 4 and 7 years old. So far I haven't given either of them an allowance. Neither one is very reliable about doing chores. I'm afraid that if I just give them money, I'll reinforce their bad habits. What do other parents do? Is it wise to tie their allowance to performing small chores around the house? Right now I'm too quick to buy them the things they want. Seems like I'm doing something wrong. -- Susanne

Answer for the CreditCards.com expert

Dear Susanne,
Your sons are fortunate to have a mom who takes the time to think about what skills and habits her children will need to lead happy, productive lives. And you've identified a couple of really important areas for their growth.

Let's take a look at what you want to teach your children and how you might use an allowance to help you.

It appears that there are three things that you want to teach your boys:

  • First, they shouldn't try to avoid work. You want them to learn that work is part of life and is generally rewarded by society.
  • Second, you pointed out that you're concerned that you're spoiling your kids by giving them most of the things that they want. You don't want them to grow up thinking that they can have anything they want just because they want it.
  • Finally, it looks like you want your children to grow up having healthy relationships with money, neither assuming that they will have an unlimited supply or grasping after each dollar like a miser. Money should be in its proper place. We should be its master, not the other way around.

How your family handles chores and allowances will make a difference in teaching these things to your boys.

They're at a good age to begin learning about money. It's hard to teach much until a child can count to 10 and understand how addition and subtraction work. Often parents begin around the first grade. Your younger son may need a year or two before he starts, but he'll benefit by watching how his older brother responds.

You've also put your finger on a frequent topic for discussion among parents. Should an allowance be tied to chores? Or should a child expect an allowance just because they're a member of the family? Good arguments can be made on both sides.

Those who choose to reward children based on performing chores say they're teaching that you earn money by working. No doubt it does teach that. They also claim that when a child wants a raise, he can earn it by doing more or more difficult chores, just as in real life.

On the other side are parents who choose to give an allowance without any specific chore requirement. They say that a family should work as a cohesive unit, with everyone doing their share of the work and receiving a share of the benefits.

Before you make a decision, I'd advise that you consider two things.

  • Don't confuse love and money. All children deserve unconditional love. Putting conditions on their allowance is not the same thing as putting conditions on your love for them. In our consumer world it's sometimes hard to remember that giving them money or things is not the same as giving them love.
  • Take into consideration your children's personalities. Some children respond well to challenges, but struggle in learning teamwork. Tailor your allowance plan to your child. You may even want to have different plans for different kids.

Many parents find that a combination approach works best, and also gives you the most flexibility. That means you give a basic unconditional allowance, plus bonuses for completion of regular or special chores.

Choosing the correct amount for an allowance is a bit of an art form. Too little or too much and the child could become overly focused on money. You want find an amount that teaches them to use money as a tool, not set them up for money to rule their lives.

One invaluable skill that an allowance can teach is how to save for something they want. It's a wise parent who doesn't make up the difference, but lets them experience the thrill of setting a savings goal and achieving it -- or not. That feeling might be enough to keep them from falling into credit card debt as adults.

Allow them to make some mistakes. Your boys may want to buy something that you know will be broken within days. Tell them your concern, but let them make the decision. It's important that they learn that making bad decisions can make us unhappy.

An allowance can be a wonderful tool to help children learn to assume responsibility, share work and rewards with family members and learn to have reasonable expectations about money and the things that money can buy.

You're wise to begin the effort now while your boys are still young. Later on they'll thank you for what you taught them.

See related: Allowances: How to pick the best system, Why every student needs to know a little economics

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Published: November 17, 2011


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