Making allowances

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There's a strong argument that an allowance is the best way to teach a child to handle financial responsibility. There's an equally convincing case that nothing could be further from the truth.

In either event, before they get an allowance, a child should be old enough to count money. The key to a successful allowance is structuring it right from the outset.

Make it clear to your children what kinds of expenditures the money is for, and that they are expected to save some of it. Younger children - ages 7 to 10 - shouldn't be held accountable for items like school lunch money as part of their allowances, but it's not a bad idea for older kids and has the added benefit of fewer payments changing hands.

Some experts think parents should not link the allowance money to household chores. Children should be expected to help out around the house and in the yard because they are members of the family, not because they are paid. That's your call, obviously, not ours.

Yet with children over 8 or 9 years old, giving an allowance doesn't preclude paying them for specific chores, especially the occasional type that you might otherwise pay outsiders to perform, such as shoveling the sidewalk or washing the car. Why not keep the money in the family?

Some parents complain that giving their children allowances puts the parents in a position where their kids are often begging for raises or advances. Jayne A. Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially (1999, Bloomberg Press), would say these parents are missing the point.

"Remember, allowance is supposed to be a teaching tool," she says. "Negotiation skills are an important part of that, which they're going to need for dealing effectively with friends, teachers and, eventually, their bosses."

So instead of grimacing when your children hit you up for a raise, decide when the time is right and then engage them in fruitful negotiations. How long since the last raise? Will new expenditures be covered? What amount of the raise will be saved long-term for expenditures requiring your approval?

The most vexing decision on allowances is how much - a decision affected by personal values, family income and common sense. Don't let your children influence the amount by saying what their friends are getting: Any normal child will bring in high figures.

Many parents like to give their children the equivalent in today's dollars of the allowance they received at the same age. Assuming that these parents have more or less the same means as their parents did, this can be a comfortable solution.

Use the calculator provided with this lesson to figure out what the allowance you received in a given year of your childhood would be worth today.

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