Are you interested in simplifying your family’s financial budget?  Would you like to provide an appropriate amount of financial freedom for every member of your family? And, would you like to teach your children how to manage money properly?

You can accomplish all three of these objectives by having an individual allowance for each person in your family.

To begin, it is probably best to determine each person’s allowance based on their needs for a calendar year.  Allowances for older children generally need to be greater than allowances for younger children, since most families spend more each year for their older children than they spend for their younger children. As for you and your spouse, unless you both can agree on and be comfortable with a different allowance for each of you, equal allowances would be suitable.

To determine an appropriate allowance for each member of your family, take into consideration not only age differences, but also differences in gender and each person’s distinctive needs. Among the needs to consider are the following:

  • Clothing

  • Personal activities such as golfing, music lessons, etc.

  • Personal care such as cosmetics, hair care, etc.

  • Meals at work or school

  • Special education

  • Savings for future needs

You and your spouse will have to determine a reasonable amount to allow for each need. Generally, past experience can be used to guide you in your decisions, but fairness is certainly important. Just because spending for one family member has been frugal in the past does not mean that person should receive a lower allowance than another family member for whom spending has not been as frugal.

Certain items — most notably, all automobile expenses — that could have been included in the above list are intentionally excluded. The reason for excluding them from the allowance of each spouse is to reduce the likelihood of conflict. If, for example, each spouse otherwise has to spend a portion of his or her own allowance for gas and other automobile expenses for his or her car, emotions could turn negative each time a decision were being made as to which car will be used when family  members need to travel together in the same car. On the other hand, if all automobile expenses are treated as family expenses by the budget, it should not matter much as to which spouse’s car is used, since neither spouse will need to pay for the auto expenses out of the money they receive for their personal allowance.

It may be argued that some money for automobile expenses should be included in the allowance for each child who has a car, especially if the child’s driving saves the parents from having to chauffeur that child or other family members. However, an automobile is not usually a necessity for a child, so parents should not feel as if it is their responsibility to pay all — or even most — of the automobile expenses of their children who are old enough to drive.

Just because there is an allowance for every child in the family does not mean that each of them will be responsible for deciding how their allowance will be used. Obviously, infants and very young children cannot be given that responsibility. However, as children grow older and demonstrate that they are becoming better money managers, they can be entrusted with an increasingly larger portion of their allowance to spend — and to save. This method will help to train each child how to be a good steward of the money they are given, so that by the time they are old enough to live independently, they will be well prepared.

In any case, when allowance money is given to a family member to manage themselves, that person should be allowed to make the final decision as to how that money will be spent. Furthermore, that person should also be allowed to suffer the consequences of his or her own poor spending decisions. If any person in the family spends too much of their personal allowance for some things, rather than keeping sufficient money to pay for additional items they may subsequently want or need, they generally should have to deal with the natural consequences that result from such circumstances. This should help the person learn how to become a better money manager.

Rarely, if ever, should it be necessary to “rescue” one of your children from the natural consequences of misspending the money he or she is given to manage. However, if the resulting consequences would be too severe, it may be appropriate to offer financial assistance, provided that you and your spouse agree as to the amount of the assistance. In such instances, it would be appropriate to impose a financial penalty, such as requiring the child to repay the amount of your assistance, plus interest.

If you rescue your child often, you may not be giving the child sufficient opportunities to learn from the natural consequences of their mistakes. And, if the child doesn’t seem to be learning from their mistakes, they probably are not ready to handle all of the financial responsibilities that they are being given. Therefore, you and your spouse may, at least temporarily, need to reassume responsibility for paying for some of the items included in the child’s allowance.  Of course, you will need to reduce by a similar  amount the money that the child is given to manage.

Finally, individual allowances should simplify your family’s financial budget by reducing the number of expense categories for which you or your spouse will need to keep records, since each family member will be expected to manage the allowance money they receive to pay for the items for which they have been given responsibility.