Use Allowance To Teach Kids To Stay In Budget
Question: Do you believe in allowances for children? If so, how do I make sure it doesn’t become an expectation?

Answer: Well, how do you feel about letting your child drive?

Oh, I see...it depends (the great non-answer all us timid parents use)!

Of course, your willingness to let junior drive your car should be directly proportional to (a) his age, (b) his demonstrated maturity and (c) you ability to be without the car while he’s got it.

Allowances aren’t much different. 

It is fine to give a small child a bit of an allowance, but amounts of money mean very little to most young children. I’m sure there are all sorts of little entrepreneurial exceptions to this generality, but I’d say that’s true until age 10.

After age 10, most children start associating amounts of money with what amounts of stuff the money will buy.

That’s when they start hitting you up for more than the proverbial shiny nickel every week.

Even the rich deal with this.

John D. Rockefeller, Jr. once wrote a memo to his 14-year-old son (John D. III, of course) about his weekly allowance. Dorie McCullough Lawson, in her book Posterity: Letters of Great Americans to their Children, provides a few details:

He agreed to give his teenager a weekly allowance of $1.50. This was back in 1920, so it translates to about $25 per week.

Old John D. didn’t tie the allowance to work of any kind, but there were a few strings attached:

First, he had to save 20% of it (as opposed to spending it). And to the degree he saved more than 20%, his papa would chip in an equal amount above the 20%.

Next, he had to use 20% of the allowance for "benevolences."

Next, he had to keep accurate records and receipts of everything he bought with the allowance. If he did, his allowance increased by ten cents the following week. Failure to do this resulted in a ten cent cut!

Finally, little John was to use the $1.50 to fund his "normal" expenses. If he wanted to buy something above and beyond what his $1.50 per week would buy, he had to have special permission from his father.

The real value of an allowance is in teaching your children that while their wants may be infinite, their resources are finite. That’s why Rockefeller’s rule that his son live within his $1.50 per week means was so valuable.

I regularly deal with the adult results of children who were never taught to tell themselves no. In childhood, they were taught they could always get "more" from Mom or Dad. In adulthood, they replace Mom and Dad with Mastercard and Discover.

I would take it a step further and limit allowances to rather small amounts -- enough to buy candy and knick-knacks. For adolescents, tie increases in your funding to work they do. Regular daily and weekly chores are fine at first, but eventually they need to be working at more difficult and responsible tasks (is that a lawn mower I hear cranking up?).

I can’t promise you your little protégé will turn out to be as rich as a Rockefeller because you did the allowance thing right.

But I can promise that moving from allowance being allowed to work can be one of the most valuable lessons you’ll ever teach your child. 

Byron R. Moore is a Certified Financial Planner professional. E-mail him at bmoore@argentmoney.com, write to him at 500 East Reynolds Drive, Ruston LA 71270 or call him at (800) 375-4646. Visit the Web site at www.mooreforyourmoney.com.