2 Answers
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I generally like the AgeInYears x $1 algorithm for a general spending allowance, but found it to be a bit high in the early years. Every family's mileage varies, but we've used the following framework with our 5 kids (7 to 19yrs old now) with good results:
Under 6yrs no allowance but collect spare change in sofa/car/etc and put in BankOfMomDad (learn the basics of bank/money),
6-9yrs allowance of AgeInYears x $.66 splitting 80%/10%/10% between Spend/Save/Charitable (learn to make spending tradeoffs and intro to saving and philanthropy),... See More
10yrs thru middle school AgeInYears x $1 split 80/10/10 (address slightly higher spending needs),
highschool same + additional allowance for entertainment and clothing (annual) (learn some budgeting basics and what it means to blow one - i.e., go without!)
Have also used simple loans effectively for big ticket items like a laptop - they appreciate and take much better care of items when they are paying them off each week over a long period of time.
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My sister in law has a great idea:
"I feel strongly that they should contribute to the household simply because they are a part of the household and not just because I am paying them. On the other hand I believe that giving them an allowance is a great learning opportunity for them. It seems that a lot of our perceptions and how we manage money is set up in childhood. Up until now the children have not needed or asked for money nor have they really understood it.
I recently read about the book Three Cups by Mark St. Germain. Its purpose is to teach children how to save, spend and be charitable with money. It outlines (through story form) how to set up a system of dividing your allowance into these three areas- week after week. We've been using this system for several weeks now and it is going really well. We only give the children $2 per week and they lose 10 cents every time they misbehave so the allowance can be anything from $0 to $2. I've told the children that as soon as their saving jar gets to $10 I will take them to the bank to set up a savings account. I'm hoping that this system will prove to have longevity and will prove successful in the short and long term."
