Parents have many child-rearing decisions to make, based on their own upbringings and beliefs. Deciding if, how and when to pay your child allowance is a decision you may struggle with. Should you just give your kids money every week? Should the kids have to work for it? An allowance system gives kids many opportunities to learn financial literacy in a very hands-on way. It gives them experience with budgeting, planning, wise spending and saving. They may even choose to donate some of it. Ultimately, the allowance system you choose has to be in line with what you want your children to learn about money and your expectations for what they will have to pay for. When choosing your allowance method, here are some considerations to factor in.

How Early?
When should you start paying allowance? That decision varies from family to family, but, in general, as soon as kids begin wanting to spend money on toys and games, they can begin to understand the concept of a weekly allowance. Sometime in the 3-5-year-old range, kids become aware of spending money. They are old enough to start recognizing and counting money at this age. Once they can compare how much they have with what a wanted item costs, they are ready for rudimentary cash management experience.

Flat Allowance Vs. Pay-For-Work
Before deciding on how much to pay your children in allowance, you should outline and agree upon whether your kids will get a set amount per week or whether they will have to work for the money. Many families tie allowance to chores, but others feel that kids should be doing chores as part of being a member of the family without pay. After all, you don't get paid for doing the dishes or taking out the garbage. One guideline that many parents follow if choosing the flat rate method is $1 per year of age per week. For example, an 8-year-old will receive $8 a week. How ever much you choose has to fit in with your own family budget.

One way to balance both concerns is to have a set of everyday (or every week) chores that your kids will have to perform without pay and then give them a list of other chores they can do for money. For example, a 12-year-old girl might be responsible for keeping her room clean, unloading the dishwasher nightly, and vacuuming the den as part of her regular chores. She may have opportunities to earn allowance by doing other chores, such as washing the kitchen floor, raking leaves or weeding the garden. These chores may vary weekly depending on the work needed to be done. The amount paid for each chore should be tied to the complexity and effort required, and the child's age. In general, older children will receive a higher allowance, based both on the fact that they are doing more chores and their spending needs are higher.

Decide What You Want Your Kids to Pay for
Regardless of whether you choose the flat rate or work-for-pay model, you will have to come up with an allowance rate. One of the main determinants of how much you should pay is what you expect them to pay for. If you want them to pay for their school lunches and uniforms out of the money they get, you will have to pay them more than if they only have to pay for extras, such as video games or movie tickets. Before setting up the plan, write up a clear list of purchases your child will have to make from the allowance, as well as any proportion that must go to longer term savings or investing.

Make Allowance Comparable to Other Families
A softer consideration, but one that will become important to your kids, is how much other parents are paying. Checking around with other parents will give you an idea of the going rate so that you can figure that into your calculation.

The Bottom Line
Determining what to pay your kids in allowance is a decision that will be based on many considerations, including your family's values and beliefs, and your vision for teaching your kids about financial responsibility. The key is to make the allowance plan clear for all family members and stick to its rules. The amount that you give your children in allowance is not as important as the lessons it teaches.

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