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When New York resident Joann Perahia was young, her parents let her spend her allowance money on anything she wanted, a practice which she insists led to poor spending habits as an adult. But this mother of two wants to make sure he own kids don’t follow in her footsteps and so she enforces an allowance policy that is very different from the one she enjoyed.

“I give them an allowance that covers their lunch money with a few extra dollars,” she tells MainStreet, explaining that the kids, identical twin boys, now 15, can spend these funds in the school cafeteria or brown bag their lunch and save for something on their wish list. The trade-off is intended to teach them how to budget their dollars.

“Allowance is the first way children learn about finances,” Perahia explains.

According to a recent American Express survey, eight in 10 parents say that their children learn the most about money from them, a sentiment that 83% of their children, age 13-17, echo. Unfortunately, these families also copped to being apprehensive about financial discussions.  One in three parents felt that talking to their teen about an allowance is comparable or more difficult than the stressful experience of negotiating the purchase of a car. And teens don’t like having the conversation either. Almost half of those surveyed said that asking their parents for money is a hassle.

How can you streamline these awkward, but necessary teen talks? Start younger, experts say.

“Your child is ready for an allowance when they start asking for wants as opposed to needs,” Youthologist Vanessa Van Petten says, adding that this can start as early as 4 or 5 years old. A youthologist is essentially a certified and trained life coach for kids.
Anton Simunovic, a father of six who runs kid budgeting site, says that at that age, children start understanding ownership … and you don’t want them to learn negative spending habits. For example, Simunovic points out, if your child is grabbing items off of the shelves in department stores while demanding that you buy them it’s probably time for them to equate getting things with earning money.

However, if you’re worried about writing your kindergartner a blank check, MainStreet offers these suggestions for instituting an allowance policy that works for both you and your kids.

1.Set a small amount.

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An allowance is intended to teach your child about money management, not as a means to minimize their nagging (though, when administered properly, the funds can do that, too.) As such, there’s no reason to supply your child with an exorbitant amount of money. Van Petten explains that you can test the waters with your child by offering something as small as a quarter that your little one can use to purchase a gumball from a vending machine.

Simunovic suggests a good rule of thumb when it comes to determining their allowance amount is to give your child half of their age in dollars per week. Teenagers can be a little bit tricky. You’ll want to assess first, what you can afford, and, secondly, what you are expecting them to buy for themselves. American Express did find that, on average, parents gave their teens $66 a month in regular allowance.

2.Make them earn it.

An allowance is more effective when tied to behavior, so don’t just hand your child a $5 bill every Sunday. Instead, have them earn the funds by doing small chores, such as taking out the garbage or vacuuming the living room. If your child seems particularly unmotivated, Van Petten suggests offering a small base amount that is adjusted for both good and bad behavior. Certain tasks that are expected of your child, such as making their bed or hanging up their clothing, can earn them this minimum. Should they fail to do these things, however, you shouldn’t hesitate to deduct from the base amount.
3.Be open to negotiations.

Similarly, you should allow your child to take on extra duties to earn some bonus bucks (especially as the child gets older). Van Petten explains that when she was younger she earned $10 for completing her chores each week, but could wash the family cars for some extra cash. “On weeks that I was trying to save up for concert tickets, I would wash both cars,” she explains.

4.Be consistent.

Regardless of the amount you choose or the system your family elects to put in place, the key, Simunovic maintains, is to be consistent. “Spending habits form early and run deep,” he says. “Giving a little bit of allowance consistently over time will teach your child how to save.” 

What have children spent their allowance on in the past? Check out this MainStreet round up of ten toy fads that have faded.

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