Kids will begin to need spending money at some point in their lives, and this too is an important teaching tool. If you’ve read my parenting outline, you’ll recall I believe all kids should be able to run a household by the time they leave high school. Among the necessary skills are managing and handling money.

An allowance is not a reward, nor should it be pay for family chores. (Doing family chores is a personal contribution to the family’s well-being.) It is recognition that children need to learn to handle money, and make appropriate choices. It’s also a way to end constant begging for money!

It provides a continuous opportunity to learn to manage money and understand its value. Sure, they’ll spend some of it on frivolous things, but if they want something that costs more than what’s in their pockets they’ll have to learn how to save (with a few wise words from parents to help them along, of course). Learning to live within your means is an important life lesson.

Some parents decide to provide all the basics a kid needs, and a few extras. But anything else a kid wants, he or she is going to have to buy with allowance, earned, and saved money. Younger kids tend to want mostly candy, toys and games, but older kids will also want technology, special clothing, jewelry, sports equipment, and other things you might decide are non-essential.

Does that mean providing only the items an Amish child might have? Certainly not. You might buy a child his first baseball glove or skate board (and helmet!), but any subsequent purchases or upgrades might be on their shoulders. The same holds true for clothing. Parents can supply enough clothing for school and daily use, but if your teenage daughter wants a fancy outfit for socializing or a dance, she’ll have to fund it.

What you purchase for them and what you make them purchase for themselves can reflect your family’s values. My son received books, music, and educational items from me all the time as gifts, often for no special reason. However, video games were his responsibility! Consequently, they were few and far between. He had to balance those purchases with other items such as snacks, sports gear and favorite clothing. (Ever notice how they take better care of things they bought with their own money?)

Some parents have tried including school lunches on the list of things the allowance pays for, but this should be done carefully. Kids need to eat well in order to grow, and an empty stomach or one filled with junk food isn’t conducive to paying attention in class. That doesn’t mean that a child can’t divert dedicated lunch money to other purposes, but by not putting it into the “optional” class with other allowance items you emphasize its importance. Either way, if you find your child is indeed diverting lunch money, it’s time for a serious talk and perhaps other disciplinary measures!

Part of learning to manage finances includes having a checking account and learning to balance it each month once they’re old enough to deal with it, usually around ten or eleven. The modern reality is that they will also need a debit card. Debit card receipts should be treated like checks and entered into the checkbook daily (you can use a computer spreadsheet as a check register for yet another teaching tool!).

Because this is a teaching tool, one or both parents should periodically review the books and statements with the child to be sure all is well. This provides an additional opportunity to teach and reinforce good habits and practices on an ongoing basis, and lets you spot any problems early on. These checkups will need to be most frequent when they’re youngest, and less so when they’re older. However, if your older child starts getting into difficulties due to poor record-keeping, you might need to step up oversight.

The size of the allowance will vary with your family’s means, your child’s personal needs, and most important, their age and ability to handle money. A five year old doesn’t need $20 a week, but that might be right for your middle-schooler. Regardless, keep amounts modest enough that your child is forced to carefully manage it. Too much money can lead to truly frivolous spending by all but the most disciplined child. Also, I don’t recommend making advances on allowances except in rare, time limited, circumstances, since these tend to detract from the need to plan ahead and manage their money effectively.

When to start an allowance will also vary, but five is probably as good an age as any. This is when they start learning about money in school, and is a great time to start teaching the value of money. Keep the amount small when they’re young. Allowance increases should be based on their growing needs, especially as you decide to transfer additional items (like candy and games) to their responsibility.

The allowance is neither a right or privilege – it’s a teaching tool. I’d always told my son that it was his mother’s and my responsibility to teach him life skills, so this argument made perfect sense to him. This concept will come in handy one day when you have a serious discussion about how the money is being managed!

Parents should set rules about the allowance, including some limits on what it can be spent on, which items it must be used for, and how it is to be accounted for. While this level of control might seem onerous to you and your child at times, remember that the allowance is primarily a teaching tool, and as they get older and more adept at money management, the controls can and should be loosened. It may be “their” money, but it’s YOUR teaching tool.

What will you do when Junior has spent his allowance on something he wanted, but now has no money left for necessities he’s responsible for, like school lunch? The temptation might be to say “well, I can’t let him starve” and reach for your wallet, but that’s really a dangerous and ultimately counterproductive road to travel. If you bail out your spendthrift child every time they go into deficit spending at the mall, they’ll never learn the most important lesson of money management (and life!) – self control.

Instead, consider an interest-free loan for younger kids, or a low-interest loan for older kids. The money you advance them this week (along with any interest) comes directly out of next week’s allowance. However, this too can be a slippery slope, so you have a few choices here. You could:

1) Make the loan, but warn them that this is a one-time offer, and that if they can’t manage their money better you’re going to deduct the lunch money from their allowance and pay it directly, just to make sure they don’t ever go hungry,

2) Make them take lunch from home for the rest of the week (and hope it doesn’t end up in the trash),

3) Let them go hungry. I don’t like this option only because it doesn’t work with every kid, and frankly, they need food energy to keep them functioning well during the school day.

Only you will know which option (or another you think up) will work best for your child.

Finally, I don’t advocate cutting a child’s allowance as a means of punishment except in cases where regularly poor or dangerous spending choices are being made. In this case, losing the allowance should not be the only disciplinary measure! The allowance should be restored as soon as your child has a new and clear understanding of the rules and consequences, but if you want to ground them for another week, be my guest!

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