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All about your child's allowance

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Age-appropriate expenditures
Even at a young age, children can begin learning about money.

Preschoolers. "Children as young as age 4 can learn coin recognition and basic financial principles such as the exchange of goods and services for money," says Solter.

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The amount of money should be minimal because children at this age tend to lose or misplace money. That's OK. It's all part of the learning process. If your son is playing with a few quarters and loses them, he won't have the money to buy a baseball card or a pack of gum.

Elementary age. By 5 or 6, most children can understand the differences between spending, short-term savings, long-term savings and donating. If they sort their money into those four categories every week, they'll be developing responsible money management skills. As they get older, children can begin paying for things such as gifts for other people and their own personal hobbies.

Tween years. During the tween years (ages 9 to 12), children who have been given an allowance from an early age will be able to step up their responsibilities as the amount of their allowances increases.

Some tweens are ready to take on the challenge of purchasing their own wardrobes and paying for all of their entertainment expenses. Many tweens will feel empowered by their allowances, although they will still need constant supervision and guidance.

That's not to say that parents should stop them from making mistakes. Remember, the sole purpose of the allowance is a tool for learning good money management principles. One of the best ways to learn is by making mistakes and dealing with the consequences of those errors.

Teen years. Most experts agree that by the time children are teenagers they are ready to receive a clothing allowance. So, instead of opening your wallet every time Junior wants a new pair of jeans, consider giving him a clothing allowance.

You may want to do this in two distinct clothing allowance chunks, rather than making it part of the allowance, since clothes shopping happens a few times a year rather than weekly. Let him use his clothing allowance the way he wants to, and when the money is gone, don't offer more -- even if he's forgotten to budget for a new winter coat and needs to wear his old one, which is ever-so-snug and showing its wear.

Freedom within limits
Some parents fear that giving children an allowance is like giving them permission to purchase whatever they want, whenever they want. Not true. The allowance gives children some freedom to choose what they want to do with their money, within your limits.

For example, you may require that a certain amount of your child's allowance be saved for college or donated to charity, or both. It's your call. And, as always, you set the limits on what's appropriate to buy. If your child is not permitted to watch PG-13 movies or play T-rated video games, then those are off-limits regardless of whether they have the money to buy them.

E-mail your comments to: editors@bankrate.com.

Bankrate.com's corrections policy-- Posted: Feb. 6, 2007
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