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Nancy Lloyd, a financial journalist and former economist, offers advice on just about every aspect of personal finance in her book Simple Money Solutions: 10 Ways You Can Stop Feeling Overwhelmed by Money and Start Making It Work for You. The following excerpt covers children and allowances.
Q. Why should I give my kids
A. Because it teaches children how to manage money in a safe environment.
The sums are small, and mistakes aren't fatal. Children don't have to worry that if they make a bad decision they won't be able to make their rent or car payment, something an increasing number of college students are facing.
Q. When should I start the allowance?
A. By the time your child turns five or six, he or she should be responsible enough to handle this new task.
Before starting an allowance, begin discussing with your child what he or she would do with the money. Start drawing up a budget. Write down what he or she would like to buy, and best estimates of how much these items would cost. Then go to the store or surf to an online store together to find out the real prices.
Get input from parents of your child's friends and classmates. How much do they give their children, and what to they expect their children to pay for with the money?
Q. Should I tie the allowance to chores around the house?
A. It works for some families but not for others. When parents give an allowance in exchange for work, some children mutiny. At some point, you may hear, "For that amount of money, I'm not going to do that work."
Many families compromise by paying a base allowance to the child free and clear, and then giving extra money to compensate them for specific additional chores (painting the lawn furniture, cleaning the garage, and so on). When a child performs a job around the house, be realistic about the quality of the work. A 10-year-old isn't going to paint the lawn furniture as deftly as a professional would, but you're probably paying your child much less.