Giving your kids an allowance
By Maya Saibil • Bankrate.com

There's no question that giving your kids an allowance can be beneficial. Patrick Doyle, an investment specialist in Toronto, says giving your child an allowance can teach him to budget and manage his money, respect the value of a dollar, learn to be independent and develop a feeling of self-sufficiency.

It can also directly benefit you, the parent, in that it will save you the headache of regularly deciding what your child can and cannot buy. So, how do you decide how much to give and when? Here's a look at everything you need to know about giving your kids an allowance.

Merit-based or for nothing at all
Whether to give your child an allowance in exchange for reward-worthy behavior or just for being a kid is controversial.

Doyle, for one, thinks that allowance should never be given for nothing -- it should, for example, be given in exchange for household chores. The idea here is that the child earns her money, preparing her for life in the outside world when she gets older.

Paul W. Lermitte, author of "Allowances Dollars and Sense: A Proven System for Teaching Your Kids About Money," sees allowance as a tool for teaching kids about money and thinks it should be given freely, with no strings attached. Furthermore, he doesn't think it should be withheld for bad behaviour: "You don't not give your kid a book because he's being bad. You discipline in other ways -- you take the TV away or you send them to their room for a timeout. You don't take away their allowance, because allowance is a tool you're using."

If you're stuck trying to figure out how much to give your kids, Lermitte suggests paying them 50 cents for every year of their age. "So, a 6-year-old would get $3 a week, and we give it to them in coins," he says, which gives the kids a better sense of how much money they're getting.

Scheduling and the issue of loans
As for when to dispense your child's allowance, make sure it's not Friday night, because there's too much temptation to spend it all on the weekend. "If you give it to them on Sunday night or Monday," says Lermitte, "they have that money sitting in their bank accounts and little wallets and purses all throughout the week, and that gives them an idea of saving. And so when it comes up to the weekend, they've had time to talk about what they want to spend their money on."

Another tricky issue is deciding how to handle your child's request for a raise.

Laurence Harris, a professor of psychology at York University, lives with his wife and two of his children, Lucy, 16, and William, 13, in King City, Ont. Harris and his wife have always had a system in place when it comes to teach their kids and money, which Harris says should work, but he isn't convinced that it has.

Their system includes giving their kids responsibility by asking them to work within a budget. But Harris admits they could be stricter about making them work within their limits; he and his wife often lend them money and allow their kids to go into debt to them when they can't afford something they really want on their own.

Lermitte says small loans from parents are OK as long as children understand the concept behind loans. He agrees with the idea of loans because they are part of our adult lives, such as when we borrow money to buy a car or a house.

If your kids ask for a raise, Doyle says you should try to make the situation mimic a real-life experience. "Ask your child to explain why he is deserving of a raise," he says.

Good grades pay
Besides their regular allowances, Harris's kids also get $10 for every "A on any school assignment, as long as a teacher writes the A," says Harris. "And $100 for every A on an official report card."

Harris says William has made about $200 for his As in the past two years, while Lucy cleans her parents out regularly (she got all but one A on her last report card, totalling $800). Harris realizes it is controversial to reward his kids with money for good grades because he does want them to be self-motivated.

"But in my defence," says Harris, "this was largely a last resort to try to get William to do any homework. Then Lucy needed to be offered it too to be fair, and she knows this. She often doesn't even bother to claim." Harris and his wife hope William will get in the habit and continue to work hard even when they stop paying him for good results, but that remains to be seen.

Lermitte is opposed to rewarding good grades with money. He says allowances should never to be tied to behaviour, such as getting good grades, or scoring goals in sports, because that teaches children the wrong values. "If you tie things to money, even chores, when they're small, it's not a big deal. But when they're 10 or 12, they do nothing unless they're paid. They become greedy and self-serving people."

Whether or not you give your child an allowance, Nathan Dungan, author of "Prodigal Sons & Material Girls: How Not to Be Your Child's ATM," writes that you should have frequent conversations with your child about money. "It's up to you to initiate the conversation and to set financial boundaries and priorities and to teach healthy financial habits. Who else will tell them to save up for that big purchase, to wait a few weeks because it might go on sale, to consider getting more value with an off-brand, to 'just say no' to another pair of shoes?"

Maya Saibil is a writer in Toronto.