A Common Sense Allowance System

How much money to pay your kids and when to start.

A recent column in the Wall Street Journal took on the subject of allowances, quoting advice from "experts" on how parents should structure an allowance system.

Now, I'm a big booster of allowances -- which I define as a fixed amount of money that children receive on a regular schedule, with the understanding that they will pay for certain agreed-upon expenses. But based on my experience with my own three kids and that of hundreds of parents I've heard from over the years, I have a different take than some of the "experts" referred to in the story.

For example, a common rule of thumb is to pay kids $1 a week for every year of their age. But many parents think that's too much for younger children; they're reluctant to give a 6-year-old $6 a week.

So I recommend that you start with a weekly base allowance equal to half a child's age. Parents feel more comfortable with the half-age figure, and you can always adjust it up or down.

According to the story, "experts say" that kids should start learning to manage money at the age of 3 or 4. I think that's too early.

I believe in keeping kids young as long as possible and not pushing them into things they're not ready for. And most pre-schoolers are too young to understand the abstract idea of money. They'll choose a nickel over a dime because it's bigger, and they have no idea how far $1 will go.

A better time to start an allowance is at age 6 or 7. Not only are children more mature, but they're also learning about money in school. So they'll know that a $1 bill equals four quarters, and that their $3 allowance will buy a small tub of popcorn, for example.

For the same reason, I disagree that children should be buying birthday gifts for their friends by age 7 and they should be getting a seasonal clothing allowance by age 9. Kids should definitely take on those responsibilities, but I'd recommend waiting until middle school for the gifts and high school for the clothing allowance.

Of course, you know your own child and each family has its own values. One of my basic rules about allowance (a subject to which I devote an entire chapter in my book Raising Money Smart Kids) is that no single system will work for every family. Whatever system you choose, keep it simple. If you can't manage it, your kids won't be able to, either.