A child's ability to handle money sensibly depends on several factors, as Dr. Marjorie Beeghly, development psychologist and research director of the Child Development Unit at Children's Hospital in Boston, Massachusetts, explains, "There are four factors which influence a child in this area: his cognitive abilities (can he conceptualize things), family relationships, peer pressure, and the child's personality. Kids understand the value of money in a rudimentary way very early, but when they begin concrete operations at what is called the 'five-to-seven year shift' they are ready for an allowance."
Most experts agree an appropriate time to begin giving the first real allowance is when your child enters first grade; however, there is a difference of opinion as to the basis on which an allowance is to be given.
Financial planner and investment advisor, Carol V. Berman, believes that the allowance should be tied in with something the child is required to do at home: "People get paid for their work, children should get paid as well."
Harold and Sandy Moe, authors of Teach Your Child the Value of Money, suggest, "The allowance should be given, more or less unconditionally because of who your child is ... a member of your family who is unique and special."
As to how much to give, the Moes believe the amount of allowance should depend on the family's financial situation and recommend giving the child a large enough sum to buy something, but not so large that they are not required to make decisions such as, "Do I have enough to buy the doll and the jump rope, or can I only get one thing?"
Some experts recommend one dollar for each year of age, while others recommend giving money equivalent to half your child's age. Berman advises talking with friends to determine what other children receive.
In a national 2005 survey of nearly 1,500 children by the research firm Yankelovich, the range in allowance for 6- to 11-year-olds is $5 to $9 a week. For 12- to 17-year-olds, the average is $10 to $19 a week, and around 15 percent of 12- to 17-year-olds received $20 to $49 weekly. (Notably, the study found that fewer than 60 percent of children ages 6 to 17 get any allowance.)
Should you have a say in how your child spends his money? If the allowance is given unconditionally, it should be the child's decision, not the parents'.
At ages 6 to 10, children should be free to spend allowance any way they wish, even if you think an item was foolishly purchased. The Moes conclude, "Let him make his own mistakes now while the stakes are small!"
As a parent you may fear your child will be adversely influenced by peer pressure when deciding what to do with the allowance; however, Dr. Beeghly says that in spite of a child spending more time with siblings and peers than with parents at this age, the parents still have the strongest influence.
"Peer pressure has a big impact. It is very heavy on children, but how it affects a child and how he spends his money still depends on the family's values."
Working parents receive paychecks at the same time and place each week. Children also should receive their allowance regularly. You and your child should decide together on the time and place. As the Moes explain, "This is the child's first introduction to a consistent, reliable form of income."
Withholding the allowance should never be used as a form of punishment. The child might get the impression that the only consequence for indulging in unacceptable behavior is to be penalized a dollar.