Dos and Don'ts for Kids' Allowances

Should allowance be tied to chores? To good behavior? Use our guide to get your allowance system right.

From the WebMD Archives

Kids need an allowance so they can practice using money, says Elisabeth Donati, the Santa Barbara creator of money management summer camps and the author of The Ultimate Allowance. Whether it's saving quarters for Pokémon cards or having cash in hand to buy a pair of skinny jeans or the latest Jonas Brothers CD, learning to save and spend money is a key part of getting ready for adulthood. "We'd never expect children to learn baseball without giving them a bat and a mitt and teaching them the rules," she says. "If we want them to be good with money, we have to give them thousands of dollars of practice."

However, parents, that does not mean tying allowance to household chores, behavior, or grades. "You're teaching children that the amount of money in their lives depends on how good they are," says Donati. The practice also undermines the idea of a family unit in which everyone contributes, suggesting that if children don't want an allowance, they don't have to do basic tasks.

When to Start Giving Allowance

Start giving allowance between ages 5 and 7, when a child gets curious about money and starts wanting things, Donati advises. Young children will learn if they spend their money on candy, they won't have it for toys. Or if they save up, they can buy something special.

For older children, Donati advises parents to portion out funds they would spend anyway -- for sports equipment or clothes -- and let teens make choices. If they shop at a discount store, they can get three swimsuits -- at a boutique, they have money for only one.

Katherine Kaldis, a California mother of two daughters ages 8 and 5, takes the money lesson a step further. She guides her children to consider generosity, which is an important value in her family, by asking them to put a portion of their allowance each week in a container labeled "share," which will go to a good cause of her kids' choice. "We want them to learn that we have many gifts," says Kaldis. "And we should never take them for granted and we should share them."

Finally, says Donati, remember that kids have some freedom, but it is still your castle. Yes, allowance is "their" money, but it doesn't mean children have license to buy whatever they want. Parents set the rules and limits -- no video games, revealing clothes -- that work within their values.


Allowance Tips

Ready to reinvent your allowance system? Follow these guidelines:

Give them control. Children tend to be less spendy with their own money, says Donati. Just the act of handing control of spending to them, she says, introduces restraint.

Make it big enough. If children's allowances are so small they can't buy anything, they won't be able to practice making decisions.

Talk about it. Many parents, says money management expert Elisabeth Donati, have told her they find it harder to talk to their kids about money than to discuss sex or drugs. Parents are often uncomfortable because they are not happy with how much they have or how they have managed it.

Keep it simple. "Make your discussions about money concrete, specific, and unemotional," advises Donati. "Be open and answer their questions honestly."

Let them fail. "They will learn as much from mistakes as they will from making great choices," says Donati. "Celebrate the wins and have conversations about the mistakes."

WebMD Magazine - Feature Reviewed by Michael W. Smith, MD on December 22, 2009



Elisabeth Donati, author, The Ultimate Allowance.

Katherine Kaldis.

Linda Leitz, author, The Ultimate Parenting Map To Money Smart Kids.

Pinnacle Financial Concepts.

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