An allowance is one way to provide money for a child to learn valuable lessons before earning money outside the home. Your children's future financial security depends more on how they manage money than on how much they have. In order to manage money, they must have some money to manage. How will you provide some money to practice on? An allowance, paid jobs, or a little of both?
The allowance system, especially in the early years, seems to be successful. Choosing to pay a child for every little job can be a hassle, and the end result may be that they will no longer work when they no longer need money. Being paid for making the bed and picking up toys introduces a faulty premise. Besides, when the children no longer need money, they will assume they don't have to make their beds anymore. Try to keep bedroom and regular household responsibilities as part of family membership rather than relating them to money. If you pay children to work at home, make a distinction between jobs for money and jobs from personal obligation.
A Different Penalty
Many children associate an allowance with performing household work because that is the first thing parents withdraw as punishment when the child doesn't perform family duties. Unless you have made a contract with the child to pay for home chores, don't withhold an allowance.
For example, if the child doesn't carry out the trash, use a different penalty, perhaps no free play time until it's done. If you dock the child 25 cents for not taking out the trash, he or she will naturally assume that the allowance is payment for such service.
Bad behavior that would require allowance penalties would involve misuse of money for things like buying candy and gum (if that is against your rule), stealing or breaking someone else's property, or using the money in some manner you cannot condone. Theoretically, an allowance is to help the child take over the management of his or her own affairs. Do this in gradual steps, looking to the time when the child will be living alone and completely responsible.
In the beginning, a young child just practices the mechanics of buying. Later, school will offer many opportunities to practice more responsibility. When they carry the currency for school lunch, a field trip or to buy a book, they are learning. There will be a few times that they lose their money. Help them find ways to carry it safely.
An allowance, perhaps so much per week or month for each year of age, would give enough money to experiment with for needs and wants. (Twenty-five cents per year of age for a 7-year-old would be $1.75.) Help a child learn shopping strategies and to evaluate afterward. For instance, a young child may decide to buy a little gadget that will break in a day. You might offer advice, but do not impose an opinion by force. The reason for having some money to spend is so the child can learn the consequences of making choices. When the flimsy little toy breaks, don't say, "I told you so," but help the child evaluate why and consider possible alternative purchases next time.
As the child gets older, you can add more responsibility with the allowance and guide the child into short-term saving. Instead of the allowance just being for fun, as when they were young, later it may be a tool to teach planning and cover dues for scouts, or lunch at school. Explain exactly what the money is to cover and teach the child how to budget it. The child will need to begin dividing the money and looking ahead.
As a matter of nature, the child will want items more expensive than one week's allowance can cover. Use this opportunity to teach the child how to save by helping the child set realistic, short-term goals. There are some purchases, like a bicycle, where you may need to match funds. Such agreements are more reachable, and when the child succeeds, important lessons have been instilled. Somewhere in this progression of responsibility you can start to teach long-term investments for a car, college or house.
To be effective, allowance must be paid on time. To put children off because "you don't have change" nullifies your object in teaching budgeting. Organize yourself; if you have told them they will get an allowance every Sunday evening, be ready and punctual.
Keep allowances small enough so they do not meet all growing wants as children enter teen years. This will provide an incentive for them to earn more. After about 12 there can be opportunities to sell goods and services outside the family. All through a child's growing years, there are opportunities to prepare a child for the world and managing money.