7 Tricky Kids-and-Money Challenges to Anticipate

In my last column marking National Financial Literacy Month, I recommended strategies that parents can use when they talk about money with their children. This time, I’d like to focus on some of the tough subjects that are likely to come up in those discussions.

Should kids get an allowance?

An allowance is the best hands-on tool for teaching children how to manage money. As I always say, kids will spend unlimited amounts of money as long as it’s yours. When their own cash is on the line, it’s a whole new ballgame. An allowance teaches them to make choices, which is the key to smart money management.

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At what age should parents start an allowance, and how much?

Age 6 or 7 is a good time to begin. Children are learning about money in school, so they know that ten dimes equal four quarters equal one dollar. Money is an abstract concept for kids, and at this age they’re gaining the maturity to understand how it works and how far it will go. I think it’s reasonable to start with a basic weekly allowance equal to half a child’s age. You can adjust that up or down depending on what expenses the allowance is expected to cover.

Here’s the biggie: Should the allowance be tied to chores?

I don’t think the basic allowance should be tied to chores. Kids should do chores because you ask them to; if they made the mess, they should clean it up without expecting to be paid. Besides, after years of writing about kids and money, I’ve learned that parents often have trouble keeping track of the chores that children do (or don’t do), so the system falls apart.

That doesn’t mean that kids get the money with no strings attached. The basic allowance comes with financial responsibilities—kids have to do financial chores, such as paying for their own collectibles or refreshments at the movies (elementary-age children); mall excursions and after-school snacks with their friends (middle-school kids); and clothing and gasoline (high school students).

To teach kids the value of working for pay, pay them on a job-by-job basis for extra work (washing the car, watering the lawn, vacuuming the family room).

Should children be required to save part of their allowance?

Some children are natural-born hoarders; you have to pry the money out of their hands (and sock drawers and piggy banks) to get them to part with it. But if your kids are spendthrifts, it’s fine to make them save. Just keep the system simple. Any allowance is easily divisible if you require them to save a nice round 10%. P.S.: The same rules apply if you want them to put money aside for charitable giving.

What’s a good age to teach kids about investing?

I’d rate it PG-13. With a little guidance from parents—or grandparents—middle-school students are mature enough to understand that owning a share of stock is like becoming a partner in the company—and sharing in the profits when customers purchase the company’s goods or services. So if you have an interest in the stock market, discuss it with your children (or grandchildren) or buy them shares of stock Read this recent Ask Kim column for more insights on teaching kids about investing..

Should parents have a say in what teenagers do with income from a job?

By all means. It’s fine for parents to require teens to save part of their income for college. And teenagers should be at least partially responsible for paying for the other big Cs of teen life: clothes, concerts, cars and cell phones. Once they start driving, they should pay for their own gasoline. If they’re on the family cell-phone plan, they could pay for their own phone plus any overage charges. And concerts and other entertainment should be on their tab.

Should I give my kid a credit card?

No. I’ve laid out a four-step plan for teaching kids how to manage plastic, starting with cash, then ATM cards, debit cards and finally credit cards. Once they’re comfortable managing their own debit card and balancing their checking account, they can apply for a credit card—on their own. They’ll build their own credit record, and yours won’t be on the line.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.