The divide between those parents who feel an allowance is beneficial and teaches money management and those who feel it just creates a sense of entitlement is huge. The debate has raged for years and the end is not in sight.

My view is that an allowance can be a chance to teach budgeting, opportunity costs and delayed gratification – if done right.

This is a divergence from the way I was raised and the way I raised my own children.

In the 1950’s, I got an allowance of 25 cents a week. Back then it was enough to buy 5 whole candy bars, a paperback book or some other combination of small items (baseball cards, marbles, Ben Franklin toys and etc).

For that allowance I was expected to do part of the household work. I trimmed grass around the house, I was on call to help Dad fix cars, paint the house or help Mom pick and can the plums and etc. From that allowance, I saved up to buy my very first two wheeler bike.

My allowance was kind of ‘extra’ money. I was not required to use it to buy things I needed, things that Mom and Dad would have otherwise bought.

My own kids received an allowance from me, and in time honored tradition of my family, it too was ‘extra’ money. They also were hired to do some of the heavier household work (some chores were part of allowance, others weren’t) to earn extra money. They did not have to buy their clothes, food and etc with it.

How to make your child’s allowance an allocation.

Instead of just giving your kid an allowance (aka ‘extra’ money), split up the household budget and allocate a piece of it to your child to manage (their allowance). From a very young age, you can then teach them more about the consequences of money mismanagement.

When your child is very young (3 – 5), allocate a very small part of your household budget to them. Explain and demonstrate to them that it is to be used to make their small purchases, small saving and some gifting – instead of asking you to make those purchases or give those gifts. In other words, they are managing that part of your household’s budget which was previously devoted to buying something for them and managing part of the gifting budget your household has.

When your child is grade school age (6 – 12), increase the allocation to a bigger part of the household budget. Explain and demonstrate to them that it is to be used for essential items such as some of their school supplies, teacher’s gifts at holiday time, sports fees and etc as well as to continue to be used to make purchases, save or give. Let them manage that part of your household’s budget that was previously used as discretionary spending on these things.

When your child is middle school and high school age (12 – 17), they should be ready to wisely utilize a larger part of the household budget. Instead of you taking care of their back to school needs – clothing, supplies,for example, they can include those items in their allowance budget.

Your job, at each age is to teach them planning and budgeting concepts and help them practice those. They can then experience the consequences of no or poor budgeting. The young child might find, for instance, that spending his or her entire allowance on candy at Walmart prevents him or her from getting something else later in the week. Let your child suffer the small consequences and learn from them. Don’t be tempted to bail the out. The lessons they learn will come at a much smaller cost than if they have to learn them in adulthood.

You of course, need to be very comfortable in what you expect them to buy with their part of the household income. If you would absolutely have to get something for them if they fail to plan well, that something should not be a thing you expect them to handle with their allowance.

For example, you would never want to expect your high school kid to pay for a visit to the dentist. Not only would they never go, but as their legal guardian you are responsible for their health and well being!

Providing allowances to children is a hotly debated topic. Some, such as the author of Young Bucks – How to Raise a Future Millionaire by Troy Dunn adamantly oppose them, saying that an allowance encourages an attitude of entitlement and that kids should do jobs to earn any money they get instead.

Others, such as Janet Bodnar, the deputy editor at Kiplinger’s Personal Finance say that “Giving your kids an allowance is the best money-management tool you can use with your children”.

What is your take on allowances for kids?