The purpose of allowance money is to allow an individual a certain amount of money to express one’s individuality in the form of using the money for his or her likings. What has been allowed should not be interfered. You may express your opinions on how the allowance could be used, but you don’t want to impose your wills upon the receiving person of the allowance. Otherwise, it will defeat the whole purpose of allowance money.
When giving allowance to kids, one of the main purpose is to help kids to understand money. Kids will immediately understand that having money is having (spending) power. Power always needs to have some check and balance. You will need to give your kids some guideline on what’s proper for them. If you give them too much allowance relatively to their age & social environment, you won’t teach them anything about spending controls. Only when the allowance money is limited, the kids will then face with choices that they need to make for themselves. It’s either buying this or buying that, but not buying both or everything. And guide them to save the money for a bigger purchase. When they understand that by delaying a small and instant gratification, they can get a much bigger satisfaction later, they will learn to control their buying impulses. By learning to manage their limited money, they can learn the significance of money, control of desires, and arrangement of priority, responsibility for one’s own freedom on choices. All of these learning cannot be fostered, if you don’t create an environment in which they have the freedom of choices based upon limited resource/money.
Besides, giving kids allowance money, a family can also use the same mechanism to separate individual’s desires from the goal of savings. You can allocate some allowance money for yourself, and mandate yourself not to spend over that amount of money on miscellaneous items. Between husband and wife, using allowance money can probably smooth out the money fight. Once you clearly spell out the spending purposes for the allowance money, then you can allocate the allowance money properly. Obviously, you don’t want to use allowance money for spending on necessity, such as rent/mortgage, food, etc. You would hope that allowance money is for things that you normally won’t buy. Having separate expense categories for family necessity and personal allowance, it will be more conducive for the entire family to work towards a common wealth, while at the same time, preserving individuality and personal preferences (& personal savings too).
When figuring out the amount of allowance money, it should be fair, but at the same time, some individual circumstances should be accounted for also. Spendings between boys & girls are obviously different. Older kids tend to need more spendings than younger kids. By taking into account on how much roughly the spendings will be required, one can either allocate less or more than the amount needed, depending on the maturity of the person. The more mature a person is with the money, the more you can entrust the money to him or her. And you should always state what the allowance money is intened for. For example, if your kids may or may not buy their own clothes, depending on the sex and the age. Once the amount of allowance is decided & negotiated between the giver & receiver, they should stick to the original spending plan as much as possible. Try not to come back and change the amount unless the economic situation, and/or spending plans change a lot. Any changes are a disruption to the training of the financial self-discipline.
Allowance money is probably the best educational tool on personal finances for your kids. If you use the system properly, you can help your kids to be mature about money very early on in their life. And you can apply the same system for adult members of the family too to preserving individuality and reduce money fights.