Now that Hannah is 4 we’ve decided to start giving her an allowance. She still doesn’t really understand how money works. For instance, it doesn’t occur to her that certain types of money are more valuable than others, or that there is a finite supply of the stuff. Which is exactly why we’ve decided to implement an allowance. We can explain things until we’re blue in the face, but she probably won’t really get it until she has some experience under her belt. Few lessons in life are more valuable than those gleaned first-hand, after all. Not many of us have good stories about that time we took our mother’s advice and saved ourselves a lot of grief. 
The first question was exactly how large the allowance should be. The going rate is $1 per year of age, which would give Hannah $4 per week, or $208 per year. It seemed a little high, especially because the money will most likely go towards cheap plastic items or candy. $4 would be the equivalent of 4 chocolate bars a week, or over 200 dollar-store items every year. Not exactly appealing (to the adults, at least).
Some experts suggest that you decide an allowance based on what your child has to pay for themselves. For example, if they’re expected to buy clothing or save for university or pay for entertainment out of their allowance, you would factor that into the amount. At 4 years old, we don’t expect Hannah’s allowance to be used for anything practical or useful. Expecting a kid who can’t tie her own shoes to buy them with her own money seems a bit much.
Which brings me to the next point. A lot of people recommend establishing good habits early by dividing a kid’s allowance into several piles – like saving, sharing, and spending. A certain percentage must go into each, the kid isn’t just allowed to spend the whole allowance however they want. Jon and I decided not to do this. We don’t do it ourselves and we’re pretty good with money. We’re able to live within our means quite comfortably. I know some people have a system like this and they love it, but since we don’t it feels a little odd to set it up for Hannah.
I also think an enforced money system might actually interfere with the lessons I really want Hannah to learn. Which is that if she takes her whole allowance and spends it on jelly beans, and then eats the jelly beans, it’s gone. There’s nothing left. She doesn’t have savings to fall back on unless she plans ahead. If we set up a rigid system, she’s just as likely to rebel against it and reject the lesson as take it to heart. The most effective thing is for her to learn by trial and error, and observe her parents.
In the end we’ve decided on $2 a week for Hannah’s allowance. It’s enough that after a month or two Hannah will be able to buy a small toy of her choosing, or spring for an ice cream cone for herself once in a while. It’s not so much that she can go on a weekly shopping spree. Although she recently discovered toys at Value Village and made her first purchase, a Barbie styling head (sort of like this) for $1.99 + tax. She’s perfectly happy to buy second-hand if it means instant gratification. I’ll keep you posted on how it works out for us and our budding budgeter. 
While Em is close in age, she’s not developmentally ready for an allowance. But what I do is allow her to pay for things when we buy them and involve her. I show her the bill or the amount due, we count out the money, she hands it over and she takes the change. She knows I get the dollars back (which she sometimes tries to snag!) and she gets to keep the change. For us, it’s all about the life skills. I’m hoping she will “get” what an allowance is soon, she rocks at doing her chores….most of the time!
Emma hasn’t gotten an allowance yet, but Mckenzi has for many years. We chose to start Mckenzi off with the 3 jars….I was never good with money as a kid and this just appealed to me. Once every few months we would make a trip to the bank to deposit her ‘savings’ jar or if there was a big ticket item she wanted to save up for, this is where we did it. The spending money was for toys or the book fair or the ice cream truck. The charity jar was used mostly around the holidays for the Salvation Army bell ringers…or church on Sunday. Mckenzi used to watch Steve and I plopping money here and there and wanted money of her own. I remember in grade 1 they had a penny drive and all her charity money was exchanged for pennies and she was thrilled. As she has aged we have also taken her charity money and used it to buy presents at Christmas for children who have none. It has been a good learning experience for Mckenzi, and it has become and intragural part of who she is.
We don’t expect Mckenzi to shell out for her own clothes or toiletries yet…most of the time. Designer, big name things she chips in for and she likes very expensive shaving razers that she has to buy for herself. She is currently saving for a new phone (the one she bought on Dec 26th ’08 is apparently soooo last year) and her own digital camera. We have always done 1/2 of Mckenzi’s age each week for her, but we did bump it up to 10$ a week when she turned 13. Now she baby sits though and has more money than me sometimes.
I didn’t grow up with an allowance. Mainly because my parents had to support 6 children and we hardly ever had extra money.
I like the idea of an allowance because when I finally did have my own money from working, I made a lot of mistakes (credit card debt). I was into instant gratification.
If an allowance can teach my children about budgeting and the value of money, I’m all for it. I probably wouldn’t put rules on it either so that they can learn their own lessons.
Very timely and great food for thought. We’re just starting to think of an allowance for the wee guy and wondering why/how much/what to do with it? etc.
I always liked the ‘three jars’ approach, but now I totally agree with what you’re saying about it sort of short-circuiting the budgeting lesson. Damn, I have to stop being so suggestible. Or read fewer blogs.
You guys are basically taking the same route as we are. Ridge really loves powdered donuts, so he has his splurge allowance for that. But, we make him save some for his cowboy big buys. You are such a good momma.
We’ve haven’t gotten to an allowance yet, but Q-ster’s been given very small money gifts from grandparents and allowed to choose a toy. Thanks for the prompting – it’s about time to think about it.
Are you planning on asking Hannah to do chores in order to earn her allowance? Our first son (almost 4) helps out here and there … I suspect that were we to start an allowance, we’d *require* him to do certain chores in order to earn it.