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How Should My Kid Spend Her Allowance?

Wherever a child’s money may reside, the urge to spend it will eventually arise. Which begs a basic question: What do we want our kids paying for exactly, and what sort of spending should we ban altogether? The answers to these questions will evolve over time, since we can’t anticipate everything. Still, by as early as age 5, kids are ready to reckon with the framework that ought to govern a lot of their spending for the rest of their lives: wants versus needs (and knowing the difference between the two).

With younger children, the definitions can be relatively simple: We need food to eat, clothes to wear, a home to sleep in, doctors and medicine to keep us healthy, and a babysitter or after-school classes if there isn’t a parent at home. Most families consider savings a need too—for the kids’ college tuition and for retirement. A car may also be a need, and many parents treat books and charity or tithing as a necessity too. Then there are things we want, like treats, sports equipment, toys, local excursions and vacations. These are nice things to have, the explanation can go, but we won’t always get all the things on this list that we want, nor will we get them all at once.

It’s also useful to have kids generate their own list of needs and wants at the outset of the allowance process, just to see what they come up with. Once they understand the concept, be prepared for it to come up at unexpected moments. By the time she was 6, our daughter had already figured out that our car was not truly a need, given that all three of us can use the subway to get to work, school and most weeknight/weekend events. She explained this while we were giving a ride to a friend of hers whose family did not have a car and wondered why we did. By age 8, she was evaluating charities on the basis of whether they were delivering services that people truly needed, like life-saving medicine, or just things that were nice but not necessary, like public displays of art.

The want versus need test will inevitably come up as our kids get older and start to question the fairness of parental spending decisions. The very best question I’ve ever heard after one of my talks on money and values came from a stumped mother who stood up in front of her peers and reported the following: Her middle school son had asked her why he couldn’t have a high-priced carnivorous plant terrarium, since his parents had bought Hunter boots for his sister. The juxtaposition was a great one, given that many parents are willing to spend as freely as they can afford to on tools for learning, and an interest in plants seems well worth cultivating. After all, kids need to learn; they merely want fashionable, expensive rain boots. I told the inquiring mom to let the kid have some Venus flytraps already.

This is an excerpt from Ron Lieber's new book "The Opposite of Spoiled"—available February 2.

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