Starting at age 8, my parents began to give me an allowance. I can't tell you how much they gave me every week and I don't know what I did with it -- I only remember that I got my allowance faithfully every Friday.

Each week, I gleefully waited for Friday (in part because it meant no more school for two! whole! days!) and pounced upon my father the minute he got home to give me my allowance.

It was, perhaps, the smartest thing my parents ever did. Which is why I will happily be giving each of my children (yes, even the 3-year-old) an allowance in the New Year.

Both child-development and financial experts agree about a couple of major principles regarding allowances. First, and most importantly, kids need to be given an age-appropiate amount of money and allowed to make real choices AND mistakes to understand how money works. The mistakes don't have to be life-altering -- a toy they've saved for that turns out to be a pile of junk.

The allowance should also be real cash, not a debit card or an IOU, so kids can feel it in their hands. Using a debit card or a Mom Owes Me $25 (after many weeks) is a fairly abstract concept -- if they cannot go to the store, select something based upon the amount of money they have in hand, calculate sales tax, and pay the clerk for their purchase, it's harder to conceptualize money.

However, financial experts (unlike my own parents who succumbed to this) believe that paying your children for chores is a dangerous idea. As kids get older, they make begin to feel a sense of entitlement about chores -- "I will walk the dog for three bucks" is much different than the idea that "walking the dog is part of my daily routine."

Instead, sit down with your child, create a list of expected chores and expectations, and in exchange for these completed chores, provide a weekly allowance that can be withheld if the child does not meet his or her expectations.

I'm certain my kids will be thrilled by this setup, and in this economy, teaching kids about money may be their ticket to avoid financial pitfalls in the future.

Have any tips about allowances? How do you handle allowances in your house?

 

Image via epSos.de/Flickr