An allowance is a great means to teach children how to manage money, develop budgeting skills and encourage independence. By giving an allowance and giving the child the responsibility to pay for the things they want and activities they like to do, it helps them see money is a limited resource and they must budget it wisely.
But an allowance should never be looked at as a salary or something a child is entitled to. Being part of a family means pitching in around the house and doing ones part to help out and an allowance should not be tied to this. Certain chores, though, can be assigned above and beyond their daily and weekly duties as a means for your child to earn extra money.
How much should you give as an allowance? As a general rule, allowance should be tied to what expenses you want your child to cover, leaving some room for savings and giving. In our house, we begin giving an allowance of 50 cents a week when a child turns six, as they are beginning to have a decent grasp of how money is used. 10 percent of their allowance goes towards charity, 30 percent towards college and 20 percent towards long term savings. The rest is up to them. They save for toys or games they want to buy, but if they want to get a treat of some kind, they are expected to pay for it themselves. This gives them the opportunity to see the cause and effect of their spending decisions.
As our children get older, their responsibility towards money and associated allowance grows along with the expenses for which they are responsible. For example, extra curricular activities such as Boyscout dues, camping trips and movies are the responsibility of our three older boys. They enjoy the responsibility of managing their own money and make adjustments to their finances as priorities or unexpected events happen just as we adults do.
In the end, allowance and the responsibility that goes with it is a means of preparing your child for adulthood.