Starting an Allowance

What's the right amount for a child's allowance? It depends on the child.

I was rather startled to read on several parenting websites that the "standard" allowance these days is considered to be $1 = 1 year of age. Seriously?  That means a five-year-old gets to spend $5 per week and a nine-year-old is regularly spending $9 on candy or (more likely) iphone apps.

I can't imagine giving a child that much discretionary income.  I rarely spend that much on myself in a month.  OK, I realize we live in the far, frozen north, but even adjusted for big city prices, it seems to be a heavy emphasis on buying-buying-buying.  I want to teach my children money management, not how to be constant consumers.

First, a few things about allowances.

An allowance is given to teach a child about money.  It should be separate from chores.  Pitching in at home is part of being a family.  It should not be "paid" for.  Some families like to offer money for extra big, once-in-awhile tasks as a way for a child to earn some money; that's fine.  A regular weekly allowance is intended to allow a child to make decisions on a few age-appropriate purchases.

An allowance should start when a child expresses interest.  For some kids, that's early.  My brother always wanted to buy trading cards and bubblegum at age 3, so he started young with a dime allowance.  When it was gone it was gone.  For kids who don't care much about money, anytime in elementary school is a good time to start.

Set an amount that fulfills some of their wishes.  Children's movies in our town are 25c.  That's unusual, but think about the top 3 small things your child would like to buy.  How much do they cost?  Set the allowance in that range.  Maybe it's enough to buy a special drink once a week, or the price of sheet of stickers.  Think small.

Set an amount that requires thinking and restraint.  Contrary to the dollar-a-year guidelines, I started my oldest at 25 cents.  He goes weeks without spending anything and sometimes has to save up.  So far his only spending interests are popcorn and ice cream from the ice cream truck.  School popcorn is 25c.  Ice cream bars are $1 +.  He's decided weekly popcorn isn't a wise use, but saving up for the ice cream truck is.

Don't go overboard with younger siblings.  We give my four-year-old a penny.  He plays with pennies as toys - rolling them, making them into pirate treasure.  No use giving him anymore until he understands the power of buying something and the ability to keep it safe. But he likes his penny - it makes him feel as if he's getting an allowance, just like his big brother.

Impulse control, decision-making, delayed gratification - these are all skills kids can learn (and make mistakes from) with their money.  As our kids grow, we'll increase their allowance, but always keep it moderate.  I'll write about kids and bank accounts, and ways to learn about big purchases, long-term savings and charitable giving in a future post.  Look for it!

What do you think?  Is a $1 / age allowance a good idea in today's economy?  What do kids spend it on?  What kinds of things did you spend your allowance on as a kid? Should we give kids an allowance that exceeds their needs, meets their needs or meets some of their spending needs (wishes)?