When I was a teenager, I loved having cold, hard cash of my own. It gave me a feeling of freedom that I can still remember. Whether from mowing lawns, babysitting or a regular allowance, money can translate into savvy cash management skills for your teen. If you haven’t already implemented allowance for your teen, you can start now.
“At our house, allowance is treated like a salary. Kids receive it for being a member of our household. In return, they are expected to be productive members of the family, to do chores, to do well in school and to be respectful,” says Tracie Shroyer, author of Investing in Your 401(k) Kid.
So where do you start? Sit down with your teen, and discuss their expenses and expectations. Together, arrive at an acceptable and affordable figure. Consider everything you expect your teenager to pay for with the allowance. Is it just for necessities, like gas for the car or school supplies? Or does it include extras, like trips to the movies with friends?
Deborah Gilboa, M.D., mom and founder of AskDoctorG.com, determines weekly allowance by each kids’ age and stipulates that they must divide it four ways: 10 percent to donate, with the remaining thirds to spend, save and invest. When it comes to saving and investing, Gilboa recommends mixing short-term goals—a cool trip or new electronics—and longterm goals, like college or a car.
“I want to teach my kids now what I hope they will do with their paycheck later. College students carry more than $2,000 in credit card debt. I don’t want that to happen to my kids, but I won’t be with them to control how they spend their money once they leave my house.”
Learning to manage an allowance now can help to stave off future credit card debt for teens by curbing impulse buys. When her teens see something at the store or on TV and ask if they can have it, Gilboa always answers with, “I don’t’ know; can you afford it?”
“I love that answer because it puts the decision-making power and autonomy in their hands,” Gilboa says. “Think of the heartache we can save them if we can teach these things on the $40 scale now instead of the $4,000 scale later.”
Ready to try it in your home? Here are some basics allowance guidelines:
1. Don’t pay teens for grades.
Experts are clear that it blows internal motivation out of the water, and kids stop performing for their own satisfaction.
2. Determine whether allowance is tied to chores.
Each family will need to decide for themselves. Is allowance linked to dishes, clean rooms, yard work or not?
3. Don’t bail teens out of money jams.
If they blow allowance on one dinner and movie and are broke the rest of the week, they learn a valuable lesson for next week. “It is better to learn from cheap mistakes now versus expensive mistakes later,” Shroyer says.
4. Be consistent.
Gilboa made a deal that if she puts her kids’ allowance off or runs late, she owes interest. It’s small but keeps her honest, and they get to see some late payment consequences.
5. Use technology.
There are amazing websites that automatically debit allowance from a parent’s to a teen’s account and designate save, spend and investing limits (AllowanceManager, iAllowance). Online banking skills are crucial for learning to check balances, calculate interest and budget.