The Skinny on Allowances

Three in five teenagers get an allowance, according to the American Academy of Pediatrics. Should yours? Probably. "You're trying to instill money management skills," says DeDe Jones, a certified financial planner in Lakewood, Colo. After all, if you teach fiscal responsibility now, you can more easily get your kids off your payroll when they're adults. In the process, you'll teach kids to be responsible spenders, and you'll end constant requests for cash. Here are some tips on handling allowances:

1. Pick an age. Better late than never, but experts tend to give 5 or 6 as an ideal time to start. "A good guideline is when the kids start asking for money," says Mark LaSpisa, president of Vermillion Financial Advisors. "'Can I have a dollar for ice cream? The ice cream man is coming.' Transfer that responsibility from mom and dad to the kids." LaSpisa suggests a weekly sum based on age. So a 10-year-old might get $10.

2. Distinguish between "allowances" and "jobs." "An allowance is not a quid pro quo," says pediatrician Joseph Hagan, former chair of the American Academy of Pediatrics' committee on psychosocial aspects of child and family health and co-editor of the AAP's Bright Futures: Guidelines for Health Supervision of Infants, Children, and Adolescents. "We clear our places and make our beds because we all help, and we give allowances because we all need some cash." Give kids the chance to earn more money, not tied to the allowance. They can do extra chores, baby sit, or get a part-time job. Over the summer, Jones paid her twins, who are going into their senior year of high school, to paint and weed.

3. Decide what strings to attach. "The allowance should be tied to something," says LaSpisa. "You could say, 'These are the things you're expected to do every week for the benefit of the family. These are the things you're expected to do to get an allowance.'" His four sons (ages 4 through 8) must make their beds, clean their rooms, and throw out the household trash on garbage day. Some parents give kids a "bonus" for the days they do an extra chore (such as walking the dog, emptying the dishwasher, or doing their own laundry) without prompting. Carefully spell out how to do tasks and encourage tackling them at the same time each day. Don't forget to praise kids for a job well done. (See the American Academy of Pediatric's advice.)

4. State your ground rules. Some parents give kids just enough for discretionary expenses, such as a trip to the ice cream parlor. Others give them enough to buy school supplies and lunches. Often parents phase in big-ticket expenditures, such as clothes and shoes, as kids get older. Whatever you choose, stay consistent. Pay kids on the same day each week.

5. Discuss the joys of delayed gratification. Seriously. Instead of wasting (oops, spending) $5 on another new lipgloss, squirrel away money for that purse or bike. The American Academy of Pediatrics' recommendations give this example: "If I want to buy that pair of boots I've been saving up for, I really can't afford these earrings."

6. Choose a charity and savings philosophy. Are you going to require kids to save a third (in a piggy bank or at the bank), give a third to charity and spend the other third? That's LaSpisa's house rule. "They can pick the charity, or they can pick somebody to help," he says. (His kids typically give at church.) Do you want to get younger children to save their money at home—and give them interest? Or do you want to open up a savings account at a bank—sometimes tricky with $7?

7. Instill proper money etiquette. "You've got to teach them not to take all their money to school, not to flash it around," says LaSpisa. "You don't want a 10-year-old walking around with $100 in their wallet." (Still, if they do that and lose it, they learn a life lesson, he says.)

8. Consult the experts. The AAP encourages parents to consider the benefits, which include learning the value of money. You might even want to talk with a financial planner. To find one, use the locators on the Financial Planning Association's site or on the Certified Financial Planner Board of Standard's site.

9. Make it easy for kids to plan and track expenses. Parents may give an older teen $200 for an entire month but say it needs to include everything from gas to cell phone texting charges. "The younger they are, the shorter the budgeting time periods," says Jones. Show kids online personal finance software, such as the simple mint.com. "It's like Quicken-lite, and it's free," says Jones. "It gives you really good feedback on how you're spending your money."

10. Don't meddle. You can give advice, but avoid the temptation to interfere. "Pray they screw up," says Jones. Better they should run out of money in junior high and be unable to go to the movies with their friends than as an adult and be unable to make a car payment. Let them mess up. If they run short of cash, don't lend them next week's allowance. Instead, let mistakes occur while the stakes are still low. Then they're less likely to happen when your kids turn into adults with credit cards.

For more stories on your family and money, read:

Should You Let Your Teen Work?

Are We Rich?

It's the Money, Honey!

When to Stop Giving Kids Money