Introduction

In an era of huge discretionary spending, learning how to manage money responsibly is one of the most important skills young people need for successful adulthood. No matter how much or how little money your children earn as adults, they will need to know how to live within their means to avoid money problems. An allowance gives your children experience with managing money, setting spending priorities, and budgeting for expensive items. It not only helps them to appreciate the power of money, but also the limits and consequences of fiscal behavior.

When should my children begin to receive an allowance?

Your child needs to be old enough for money to be meaningful (or, as one parent put it, "old enough not to eat it!"). Children should be aware that items in stores need to be purchased and that they need money to buy them. They should be able to recognize different coins and know coin values, and they should have basic counting skills. These skills are usually emerging by about the age of 5 or 6.

How much allowance is enough, but not too much?

"Enough so that your children can squander it, but not so much that you'll be upset when they do," advises Janet Bodnar, who also writes "Ask Dr. Tightwad," a column about kids and money that's syndicated by the New York Times. That is, the children should receive enough to make some meaningful decisions about what is important to them, but they shouldn't get more than they're comfortably able to manage. Research shows that, while children from higher-income families are more likely to receive an allowance, they don't receive a higher allowance than other children. The amount of a weekly allowance should increase with age, as children learn to handle money more responsibly and as their needs (and "cost of living") change.

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