Kids' allowance tips

Decisions a parent must make before starting an allowance
Certainly there are ways ot teaching money management other than the allowance "earn-and-learn" structure. They will be covered as we go along. None, I believe, is as meaningful to the child as the hands-on system of managing an allowance.

Before we start, here are the questions you need to ask yourself:
1. Am I comfortable paying my kids an allowance? Do they really need that much money?
2. Is my child old enough to begin learning about money and responsibility?
3. What household chores do I want to tie to the payment of an allowance?

How to determine the amount of the allowance
Once you've decided that an allowance is a useful teaching tool and that your child -- even one as young as three -- is ready to begin "earning and learning," then you need to formulate a starting "salary."

For my own two children, I started them on an allowance when they were three and six years old. I used an easy rule of thumb: their allowance was the same number of dollars as their age. I've continued to use this rule as they've grown.

Many people's first reaction is that three dollars is a lot of money for a three-year-old. Let me explain what you and your youngster will be doing with this money.

There are three basic areas of money management we will be working on in this book. I call it my S.O.S. system. Briefly, they are:

1. Savings. Some portion of the allowance needs to be allotted for both short-term savings, like for a special toy or outing, and long-term savings, such as for a bicycle or college fund.

2. Offerings. This is a small amount of money set aside for donations to charity or to the less fortunate. However small the sum, it is a valuable way for a parent to teach personal values through money by showing the child how to share her good fortune.

3. Spending. Depending on the budget you develop with your child, part of her spending money may go to cover specific expenses. It can range from lunch money or bus fare for young ones, to total management of a year's clothing budget for more sophisticated teenagers. At any age, however, there needs to be some money that is the child's discretionary fund to spend as he wishes (with whatever limitations you set, for example, no drugs, no candy, no automatic assault weapons).

Think about your own financial priorities. What percentage of your budget goes to saving, to charity, and to spending? Would you want your child's priorities to be similar to or different from yours? For example, would you like to see your offspring save more (percentagewise) than you are able to? If areas such as saving and charitable giving are important to you, then you may need to increase the amount of the allowance for the youngster to accomplish this.

Excerpted from Money Doesn't Grow on Trees by Neale S. Godfrey and Carolina Edwards. Copyright 1994 by Neale S. Godfrey. Originally published by Fireside. Excerpted by permission of Curtis Brown, Ltd.