Children between the ages of five and six are good candidates for an allowance. Because the experts I spoke with believe that the primary value of an allowance is to teach children how to manage money, many do not believe that you should withhold allowance as a consequence for undesirable behavior (in fact, I am not even going to site a source for this because there are just so many of them!) Some experts even go so far as to use bold, underlining, and ALL CAPS to drive the fact home that allowance should not be tied to behavior or the completion of chores.

The argument is that children can only learn how to live within their means if they can count on a set amount of money at a set time. They believe that parents should use chores as an expectation of being a member of the family and that you should consider withholding privileges such as television, using the phone, etc., as a consequence for not completing chores. I am not an expert in child development, but I would like to humbly offer a counter-point to this argument.

Speaking as a mother of kids who like money more than they like television or the phone, I am switching gears, ignoring expert advice, and tying allowance to daily behavior. Apparently, I am risking that my kids will grow up not knowing how to manage money, but I think there might be a few benefits as well.

-It reflects real life in that you need to meet certain standards to earn money.
-It teaches them how to live with varying amounts of disposable income.
-It is a good illustration of how money can add up over time.
-It helps with organization (see below).

Plus, I think the majority of what kids learn about money is not from spending a few dollars a week on toys, but from what they see parents do.

So what is this going to look like? I am repurposing a pill reminder.

I’m filling each compartment with 50 cents. At the end of each “good” day, the kids will get their money (don’t worry, most of our days are great!) So, have any predication on how you think this plan will work?

Any life change can be hard on a family budget, even if it is a happy event like the birth of a child. In fact, members of MMI’s Advice Team regularly receive questions about family and finances. In case you have similar questions, I wanted to share few frequently asked questions and answers.

Dear Advice Team: We recently adopted a son. We are all doing very well, but my concern is that at the end of every month we are broke! I am just buying things for our son. My husband doesn’t seem to understand how much a little baby can cost. Help! -Julie, Colorado

Julie: The not-so-good news is that you can plan on spending many thousands of dollars each year to raise your child until they reach age 18; and this doesn’t include college. If the amount seems overwhelming, you take comfort in the fact that many new parents worry about money. However, most adjust quickly and find that it is definitely worth every penny! Developing short-term and long-term goals can help you to stay focused. Make sure that your will and insurance policies are updated to meet the needs of your new family. Finally, keep the lines of communication open. Communication can be the key to a financially successful family life.

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Dear Advice Team: We just had our third daughter. On top of college costs, the idea of paying for three weddings is totally overwhelming. What is the best way to go about preparing for these upcoming costs? -Jeri, Arizona

Jeri: Cars, college, and weddings are just a few of the high-ticket items you may fund in the future. Fortunately, time is on your side. If you started saving $200 per month now in a money market account (5%), by the time your youngest child is age 18; you will have $69,840 and could avoid borrowing. Also, it is important to realize that having girls does not necessarily mean that have to shoulder the financial burden of their weddings. Today’s rules are not so hard and fast.

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Dear Advice Team: We are pregnant with our first child. My wife and I enjoy nice things. I worry that our budget will not accommodate our lifestyle and the baby’s expenses. Do you have a sample budget we can use? -Sean, North Carolina

Sean: The costs of raising a child can vary greatly based on the choices you make so this is not a case where one budget fits all. Keep in mind that becoming parents usually means changes in the lifestyles of both parents. If you think about it, people who don’t have children waste a lot of money filling time and avoiding boredom. Rest assured: you’ll have no problem filling your schedules once the baby arrives.

A while back, I participated in a televised call-in show about kids and money with members of the Jump$tart Coalition. In preparation, I posed questions to a group really talented, dedicated people from organizations like Young Americans Bank, The American Institute of Certified Public Accountants, and the Financial Planning Association. The result is one heck of a resource on kids and money with topics covering budgeting, credit, cars, school/college, and jobs.

Today, I’m going to share a some questions and answers about budgeting. (Disclaimer: not every answer will reflect the views of all participating organizations.)

How do I begin the discussion about money?
Connect your discussion to an actual activity or event. For instance, before you go grocery shopping, discuss how much money is in the food budget and let your child make the grocery list. As you shop together, encourage your child to conduct price comparisons. Make certain the discussion is informational, not emotional.

When should I begin teaching my teen about money?
Children as young as 2 or 3 years of age can be encouraged to save money in a piggy bank at home. Children at 5 or 6 years of age may be ready to open up their own savings account at a bank. Children between the ages of 7 and 9 should start learning about investment options.

What is the best way to teach them about money management?
It’s not possible to teach money management to children by simply telling what you want them to know. They need to learn by doing, they need field trips, and they need one-on-one conversations with you. Make a special time to discuss money, perhaps during an outing to your child’s favorite restaurant. They need to learn through their mistakes. Teaching children about money is one of the greatest gifts you can give—lessons learned last a lifetime.

Do I bail them out when they run out of money?
Perhaps the first time, but only if you do so by drawing up a contract/agreement with specific repayment terms. Don’t forget to include an interest payment! Young people need to learn from their mistakes and they need to experience the consequences of their actions.

Do I give them an “allowance?”
Yes. The amount of money is not as important as adhering to a regular payment schedule. Allowances should be reviewed in private, on a certain date (perhaps on the child’s birthday). There can be increases each year, but with this additional money new goals for its use must be set.

How much should I tell them to save?
For teens, a useful formula is 70% spending, 20% savings and 10% sharing (charitable donations) of income (income= allowance, gifts of money, stock dividends, and so on.) For younger children, a useful formula is one-third spending, one-third savings, one-third sharing. Setting savings goals can actually help determine how much the teen/child should save.

At what age should a child receive allowance?
Children between the ages of 5 and 6 (first grade) are great candidates for receiving a weekly, bi-weekly, or monthly allowance. The most important thing about allowance is that the amount and distribution time are consistent so children can plan how to “live within their income.” Avoid controlling how your child spends his/her allowance. The freedom to make mistakes and the self-esteem that comes from learning to make spending decisions is why children need to have an allowance.

Is it appropriate to tie allowance to chores?
The primary value of an allowance is to teach children how to manage money. Children can only learn how to live within their means if they can count on a set amount of money at a set time. Use chores as an expectation of being a member of the family and consider withholding privileges such as television, using the phone, etc., as a consequence for not completing chores.

At what age is it appropriate to give your child more financial responsibility, i.e., clothes allowance or entertainment budget?
Assuming your child as been receiving an allowance for a number of years and has experience in making monetary choices and decisions, youth between the ages of 12 and 13 are good candidates for more fiscal responsibility. Set specific guidelines for the clothes allowance. For instance, decide what clothing items the teen is responsible for and what items the parent is responsible for.

How much of the family financial situation should be shared with my teen?
The more information that you are comfortable sharing with your child, the more financially fit s/he will be as an adult. Don’t be afraid to share your financial mistakes with your teen — let him/her learn from your mistakes. Remind your child that financial matters may be confidential.

What is appropriate to provide my teen: car, insurance, clothing?
Raising financially fit teens may depend on providing opportunities for teens to take partial or all responsibility for these items. If you have encouraged savings habits and have helped your child to set savings goals, it’s very possible that s/he can actually buy a car, insurance and clothes!

How do I tell my teen that it is okay to go without?
A great exercise is to have your teen identify his/her needs and wants. Explain that a need is something that you must have to survive and a want is something you’d like to have. Going without something you want in order to afford something you need is just another way of living within your means.

Is there a simple way to create a budget?
Yes. First, begin by identifying all the sources of income (allowance, job, gifts, stipends). Then list all of your expenses (food, transportation, clothing, housing, etc.). Subtract your monthly expenses from your income. If there is money left over, consider additional expenses such as entertainment, cell phone, etc. Also consider budgeting for saving and sharing (charitable donations.) Track your outflow of money and be ready to tweak your budget next month.

Is there a difference between a budget and a spending plan?
Not really. Some people feel constrained by the idea of budgeting. Creating a spending plan sounds more positive. One of the most important personal money management rules is: Live within your income. To accomplish this, most of us need a plan for how we will spend our money.

How do I encourage my teen to set short-term and long-term goals?
Share your short-term and long-term goals with your teen. Share goals that you have achieved and explain how you accomplished them. Listen to your teen and help him/her discover their dreams and passions. Then sit down together and start creating an action plan. You might want to make sure the goals are compatible with your expectations.

What are the five things teens need to know about money management?
1. How to manage a checking account
2. How to manage a credit card
3. How to make and live within a spending plan/budget
4. How to use a debit/ATM card responsibly
5. How to plan for the future

Check back tomorrow for the Q & A on kids and credit!