MintFamily With Beth Kobliner: The Great Allowance Debate

The number one subject parents ask me about is allowance. At PTA meetings and dinner parties, I field more questions than a White House press secretary. “How much should I give?” “Should I pay my kids for household chores?” “Is it reasonable to make them save part of their allowance?” “What are the spending ground rules?”

To add to the confusion, some experts say kids shouldn’t get an allowance at all. Lewis Mandell, a fellow at the Aspen Institute and professor emeritus of finance at SUNY Buffalo, argues that giving kids an allowance is the equivalent of welfare — they get money for free!

True, the worst thing you can do is treat your kid’s allowance like a toaster oven. Don’t simply set it and forget it! But with discussion, consistency, and some sensible rules, an allowance can be an important tool for teaching your kids about money — and getting them to stop pestering you for handouts all the time.

When to start, and how much?

When your child is old enough to know that she needs to make choices about how to spend her money — generally, around age six — she’s old enough to receive an allowance. Keep it modest; she doesn’t need to flaunt her bling on the playground.

A friend of mine gives each of her kids a dollar for every year of age, a common rule of thumb among parental “bankers.” Others do half that. You’ll have to factor in your family’s economic situation (it’s OK for kids to know that times are tough!) and the local cost of living. In New York City, where we live, an ice cream cone alone can cost $5, so a few quarters won’t buy more than a pack of gum.

One big factor in determining how much to give? How the allowance will be spent…

What’s it for?

Kids are bombarded by advertisers, their favorite TV characters, their friends with come-ons to buy everything from the latest smartphone to runway fashions for tweens. Gone are the days when all a child expected were new jeans for school and a few presents during the holidays.

I’m one of those parents who cover their kids’ “needs” (lunches, basic clothes, etc.), but I also throw in main-event purchases, like a movie ticket for an outing with friends. My kids get an allowance for extras, like popcorn for that movie outing. As your children get older, you can give them more responsibility. For example, doling out their lunch money for the week and letting them manage it is a great way to teach them budgeting skills.

Our family has learned the hard way the importance of defining “wants” and “needs.” A couple of years ago, when my daughter was 14, I sent her to the mall with some money for things she needed — she’d shot up a few inches and nothing fit. She came back with a bunch of makeup. When I asked for my money back, she was confused. In her mind, she’d bought something she really needed. Since then we’ve clarified the rules so that the parents and kids in the house are on the same page. And my husband and I try to be consistent, even though it can be very hard.

The great chore divide

Should you link allowance to chores? It’s as divisive a parenting question as whether to let your baby cry himself to sleep. Those who pay their kids for doing basic household tasks say they are showing that money is earned. But what about teaching your kids that pitching in is part of being a family? Once they leave the house, no one’s going to pay them for setting the table.

Shelling out allowance for doing chores, which is really just baseline family participation, isn’t a good idea. But it’s different if you pay a fair wage for extra assignments that you declare to be above and beyond the call of duty. Be clear about which tasks are expected and which (helping paint a room? raking leaves in the fall?) are cash worthy.

Hold the line!

Your rules won’t be worth a plugged nickel if you don’t stick to them. I may sound like a broken record here, but that’s because consistency is SO important. Telling your daughter that she can’t have money to get pizza with her friends because she’s already blown her allowance may seem hard-hearted. But what will she learn if she nags her way into another $10? The “Can I have…?” pleas will die down once your children know that they’ll get their allowance every Monday (or whatever day you choose) and you won’t pony up more money once it’s gone.

Spend, save, share

It’s easy for kids to spend! But an allowance should introduce them to all three S’s: spend, save, share. Help your child open a savings account. Explain that for every dollar he receives, he should save at least a dime. And encourage him to share a little of the allowance wealth — perhaps by donating to a charity or getting a present for a friend.

Straight money talk

There’s a big difference between handing over no-strings-attached cash (bad idea!) and explaining to your kids why they’re getting an allowance, what it’s for, and how it fits into the family budget. Yes, it takes time, but what a return you’ll get on that investment! Your kids will learn that money doesn’t grow on trees or sprout magically from your wallet. That’s one small step for household sanity, one giant leap for financial fitness.

Beth Kobliner is a personal finance commentator and journalist, the author of the New York Times bestseller “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” and a member of the President’s Advisory Council on Financial Capability. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.