Does allowance pay off for kids?

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Experts say whether given weekly, monthly or annually, an allowance is one of the best ways to teach children and teens overall financial responsibility, including how to save, spend and budget money.

Elaine Morgan and her husband, John, wanted their children to learn the value of money early on.

So when Katie and Ryan were in elementary school, the Ellicott City couple opened a savings account for each of them. Whenever the kids received money as birthday or holiday gifts, they had to put half of it in their savings accounts and give 10 percent to charity, Elaine Morgan says.

"They got in the habit of saving," she says. "And the importance of giving back."

But as the sister and brother neared their teenage years, and their understanding of money grew, the Morgans agreed it allownceWwas time to give them more financial responsibility.

They began giving their children an annual allowance in the summer based on academic performance and not chores, Morgan says.

"To us, that's the most important job," she says. "The rest of the chores around the house, that's just being part of a team, a part of our family."

According to the American Academy of Pediatrics, about three in five teenagers receive an allowance.

"It will plant the seeds so you can prepare your children (for the future)," says Ron Campbell, financial planner and president of Campbell Financial Services in Glen Burnie.

If you are considering giving an allowance to your kids, here are six tips to help you with the process.

Six tips on giving allowance to kids

1. Set a schedule

Experts say before allowances start, parents should determine when and how often money will be distributed. The American Academy of Pediatrics recommends paying children on the same day every week. That consistency will help them practice budgeting their dollars until the next payday, AAP says. And if children run through an allowance too quickly and want an advance? The bank is closed.

2. Decide on an amount that works for your family

There's no magic number when it comes to allowance and a child's age. Some parents try to match what neighborhood kids are receiving, while others, like Shelley Marcella of Elkridge, give half of the child's age in dollars each week. Others estimate how much they spend on clothing, snacks and entertainment — like going to the movies — and then give a portion of that amount to the child.

"It's very individual," says Cheryl Rubenstein, an Annapolis psychologist. "Frankly, I don't think you want it to be too much but enough so they can practice budgeting for something they really want."

In the Morgan household, Katie, 15, and Ryan, 13, each get $250 for the summer if they perform well in school and meet their parents' expectations. If they achieve straight "A's" or perform better than expected, they receive a $50 bonus. If they perform below expectations, they are docked $50.

"John says, 'When the grades go down, the wallet slams shut,'" Morgan jokes.

3. Set saving and spending rules

Campbell says children should save at least 20 percent of each allowance payment. This will teach them the importance of building a safety net in the future, he says.

Susan Smith Kuczmarski, a Chicago-based parenting expert and author of "Becoming a Happy Family: Pathways to the Family Soul," recommends saving 33 to 50 percent.

As for spending rules, Rubenstein says parents should think about things they don't want their child to have, such as violent video games, and tell them the guidelines early on. She said parents should also encourage children to donate part of their allowance to charity.

"Introduce the concept of helping others," she says.

4. Let them make decisions — good and bad

Regardless of the amount saved or given, children need to make some of their own decisions about using their allowance – and then learn from their mistakes, Kuczmarski says.

"For example, if they overspend and haven't saved enough to buy a sibling a birthday present, they've not managed their money well and need to make some shifts," she says. "Giving them the opportunity to call the shots does teach kids some valuable lessons about money management."

One day last summer, instead of buying French fries for lunch at the beach, Katie and Ryan Morgan went back to the family's condo to make their own lunches – and save money.

"It really made them think twice," Morgan says.

Ryan has even passed up snowboarding trips with friends to save his money for a GoPro camera.

"It took him a while to save up, but it was so meaningful to him," Morgan says. "It's probably his (most) prized possession."

5. Don't tie allowance to chores

Research shows tying allowance to chores doesn't work, says Richard Rende, an Arizona-based developmental psychologist.

"When applied to fundamental household responsibilities — think the kind of chores that simply need to get done on a regular basis — it sends the message that these tasks are low value activities," he says. "The allowance undermines the sense that kids should be developing an important social role in the family, which is driven by being responsive to each other's needs and a pure motivation to take care of each other."

The social importance of empathy and care giving "gets lost" when money changes hands, Rende says.

Morgan says that while they don't pay for chores, they will pay Katie and Ryan for "above and beyond" jobs, like weeding the garden beds or cleaning out the basement storage area if the teens are looking for extra money.

6. Continue with allowance, even after teens get jobs

Parents and their teenagers should work together on a budget, Kuczmarski says.

"With more money coming in the teen's door, then more money can be saved and perhaps invested," she says. "Teens can learn to buy stocks on invest in other ways."

Still, parents should keep a "watchful eye" on spending, she says.

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