Where do you draw lines with an allowance?

Allowances are an invaluable tool to teach children about budgeting, but where are the lines? Should allowances cover basic food, and clothing, or are those the parent's responsibility?

Melinda writes in:

My twelve year old daughter and I are having a money war of sorts. At the start of the school year last month we went shopping for clothes together. I said she could spend $250 any way she chose as long as she got a certain number of items – some underwear, some socks, some jeans, some shirts, and so on. I told her that she could spend more, but it would come out of her allowance. She proceeded to buy only the minimum amount of socks and underwear so she could buy another shirt that she liked. Now she’s having to do laundry twice a week and is complaining all the time about it. I told her to use her allowance to buy the underwear and she says that’s completely unfair. What do you think?

I think this is an experiment that had great intentions that went badly, but there are a lot of interesting pieces worth discussing in here.

First, I really like the idea of using this situation to teach your child about budgeting. In the end, that’s what’s going on here – good old fashioned budgeting. This experiment takes the concepts of budgeting and puts them into something concrete that the twelve year old can really understand and take part in. The idea of using additional money for budgeting

Second, I think you should buy her the necessary underwear and socks. This might surprise some of you because it’s obvious that the child made the mistake of spending that money on a shirt instead of the undergarments. The key thing to remember is that an obvious mistake to an adult isn’t an obvious mistake to a pre-teen, and forcing the child to get by on three or four undergarments is not exactly a great choice from a hygenic angle.

Instead, chalk this one up to a bit of a lesson learned for both of you. The idea is good, but the undergarment requirement from you as a parent should have been higher. If someone is required to do laundry twice a week because their undergarment count isn’t high enough, they should consider more undergarments. Not only will they last longer, but they’ll save on water and energy use by not requiring the user to run laundry loads with only a few items in it.

However, this question leads into a much broader one: what items should a child pay for out of their allowance – and what should their parents pay for?

While it may seem like a black-and-white rule for some, the line between the two can be extremely different from household to household. For example, in Melinda’s household, the child is being encouraged to spend their allowance on undergarments, whereas in my own household, this would never even be a question – we would buy such items for our children.

Where is that line?

For us, the rule of thumb is simple: the parents take care of basic needs, period. Basic needs means food, water, clothing, housing, school and field trip fees, and so forth. While our children remain at home before college, we will provide these things for them without any impact on their allowance.

However, we will often provide for just the basic needs. My children will always have clean clothes, but the shirts might just be generic t-shirts and denim jeans. My children will always have food, but that might come in the form of a sack lunch instead of $10 to spend at McDonalds.

Expenses for “wants” either come out of their allowance or are earned in some fashion. We give our children a small allowance each week that’s not tied to chores, but our oldest child now has the occasional opportunity to do more things to earn money. For example, if I’m out in the yard raking leaves and he spends an hour and a half filling trash bags with those leaves, I may give him a few dollars for his extra effort.

What about those “unexpected” situations? If something unexpected comes up, they may get a very small allowance advance to cover the minimum cost, but that’s all – and by minimum, I mean $3 if they’re going to stop at a fast food restaurant with some friends or something similar to that.

But I don’t want my child going without! Going “without” on small things is a valuable teaching tool. It teaches them that they can go without things that their friends have. It also teaches them the value of not spending their allowance all at once. (Of course, these lessons have to be coupled with involved parenting and discussion. That’s an assumed part of the equation.)

Remember, your job as a parent is not to be your child’s “pal.” It’s to take care of their basic needs while teaching them the skills they’ll need to survive outside of the relative safety of your home. One big part of that is personal finance, and lessons like these build that groundwork.

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