ShortCuts in This Guide

• Help My Child Create a Spending Plan
  
  A kid’s allowance is a great tool for teaching kids money management, but creating a spending plan, or allowance budget, with your child enhances the learning. Follow these ten steps to create a spending plan both you and your child can live with.
  
  

  1. Use the Spending Plan Worksheet to get your thoughts on paper.
  2. Help your child make a list of expenses. Try not to pass judgment on choices (it’s your kid’s money, after all), and don’t forget everyday expenses such as club dues, MP3 downloads, and bus fare.
  3. Classify each item on the list as a need (an unavoidable expense such as lunch money) or a want (a new purse, a video game).
  4. Assign responsibility for each item on the list. Who will pay, you or your child? Explain that responsibility means that your kid will have to keep track of expenses for each item assigned to him or her.
  5. Brainstorm possible unexpected expenses such as a birthday party gift or replacing a damaged backpack. Decide whether you want to set up a fund to cover such expenses.
  6. Plan for large purchases such as summer camp tuition, athletic equipment, and optional school-related items (a yearbook, a class ring). Use a school calendar to note anticipated expenses.
  7. Talk about savings. Buy a piggy bank for young kids, or open a savings account and teach your child how to deposit money regularly. Talk about the difference between short-term savings for small items such as snacks and longer-term savings for major purchases.
  8. Talk about charity. Share your values about giving of time, talents, and money. Talk about how kids can help others, for example, by spending some of their allowance to buy items for a local food pantry or by putting their change in an animal shelter collection container.
  9. Write down the plan, sign it, and date it.
  10. Evaluate the plan after a month or so. How is it working? What has your child learned from it? Is there anything he or she wants to change? Note: Once your child's budget is up and running, check it yearly at the beginning of the school year or on your child’s birthday to identify unexpected expenses and make necessary changes.

• Help My Child Create a Spending Plan

  
  A kid’s allowance is a great tool for teaching kids money management, but creating a spending plan, or allowance budget, with your child enhances the learning. Follow these ten steps to create a spending plan both you and your child can live with.
  
  

  1. Use the Spending Plan Worksheet to get your thoughts on paper.
  2. Help your child make a list of expenses. Try not to pass judgment on choices (it’s your kid’s money, after all), and don’t forget everyday expenses such as club dues, MP3 downloads, and bus fare.
  3. Classify each item on the list as a need (an unavoidable expense such as lunch money) or a want (a new purse, a video game).
  4. Assign responsibility for each item on the list. Who will pay, you or your child? Explain that responsibility means that your kid will have to keep track of expenses for each item assigned to him or her.
  5. Brainstorm possible unexpected expenses such as a birthday party gift or replacing a damaged backpack. Decide whether you want to set up a fund to cover such expenses.
  6. Plan for large purchases such as summer camp tuition, athletic equipment, and optional school-related items (a yearbook, a class ring). Use a school calendar to note anticipated expenses.
  7. Talk about savings. Buy a piggy bank for young kids, or open a savings account and teach your child how to deposit money regularly. Talk about the difference between short-term savings for small items such as snacks and longer-term savings for major purchases.
  8. Talk about charity. Share your values about giving of time, talents, and money. Talk about how kids can help others, for example, by spending some of their allowance to buy items for a local food pantry or by putting their change in an animal shelter collection container.
  9. Write down the plan, sign it, and date it.
  10. Evaluate the plan after a month or so. How is it working? What has your child learned from it? Is there anything he or she wants to change? Note: Once your child's budget is up and running, check it yearly at the beginning of the school year or on your child’s birthday to identify unexpected expenses and make necessary changes.
• Worksheet: Spending Plan

  Record all expenses for one week.

  Date	Item Purchased	Where Purchased	How Purchased	Amount
  10/15/XX	Bakugan expansion balls	Wal-Mart	Dad gave me money for it	$13.95

  
  Notes on Using Your Practical Money Skills

  List items that you wanted to purchase but did not:
  
  
  
  
  
  List items that you might typically purchase but did not in this particular week:
  
  
  
  
  
  How much money did you put into savings?
  
  
  
  How much money did you share with others or give to a religious or charitable organization?
  

  
  
  Spending Plan

  
  My current weekly allowance is: __________________________________________
  
  

  Weekly Expenses/Spending	Amount

  
  Each week, I plan to put into savings: ______________________________________
  
  
  Each week, I plan to give to others: ________________________________________
  
  

• Worksheet: Spending Plan

  Record all expenses for one week.

  Date	Item Purchased	Where Purchased	How Purchased	Amount
  10/15/XX	Bakugan expansion balls	Wal-Mart	Dad gave me money for it	$13.95

  
  Notes on Using Your Practical Money Skills

  List items that you wanted to purchase but did not:
  
  
  
  
  
  List items that you might typically purchase but did not in this particular week:
  
  
  
  
  
  How much money did you put into savings?
  
  
  
  How much money did you share with others or give to a religious or charitable organization?
  

  
  
  Spending Plan

  
  My current weekly allowance is: __________________________________________
  
  

  Weekly Expenses/Spending	Amount

  
  Each week, I plan to put into savings: ______________________________________
  
  
  Each week, I plan to give to others: ________________________________________
  
  
• Set the Right Amount for My Kid's Allowance
  
  Setting the right amount for a kid’s allowance doesn’t have to be guesswork. Choose from the following options to determine a fair rate.
  
  1. Age Many families with pre-K and elementary school age children provide a weekly allowance based on the age of the child (either fifty cents or a dollar per year of age). With this method, for example, a ten-year-old would earn either five or ten dollars a week.
  
  Some parents give kids one dollar per grade level per week (a fourth grader would earn four dollars a week under this system). As children get older, many families switch to an allowance system that takes actual needs into account.
  
  2. Peers  Some parents base the amount on the going rate for allowances in their area. If this method seems fair to you, ask the parents of your child’s friends what they pay their children and set your child’s allowance at a similar rate.
  
  3. Budget In order to teach money management skills, some parents let their older kids pay for the expenses parents would usually pay with allowance money. To figure out an allowance amount using this method, record everything you spend on your child for a month. Determine which expenses your child will be responsible for and which ones you’ll cover. Subtract the expenses you’ll pay and average the rest. Decide whether you want to include money for savings and for charity. When you arrive at a figure, make sure your child understands exactly which expenses he or she is responsible for.
  
  4. Your Childhood Allowance You can choose an allowance amount based on the amount you received as a child, especially if you think that allowance was effective in teaching you money management. Use an allowance calculator to calculate an amount that is equivalent to the purchasing power of your allowance when you were a kid.
  
  5. Payment for Chores Some experts claim that chores and allowances should be separated (one is meant to teach family responsibility, the other to teach money management). But other experts argue that money should be earned not just handed out.
  
  One compromise between these two conflicting opinions is to provide a set allowance and mandatory chores. Additional chores earn extra money. For example, a child may be expected to make the bed, set the table, fold clothes, and take out the garbage. If the child wants to earn extra money, parents might agree to pay two dollars for scrubbing the bathtub or five dollars for washing the windows.
  

• Set the Right Amount for My Kid's Allowance

  
  Setting the right amount for a kid’s allowance doesn’t have to be guesswork. Choose from the following options to determine a fair rate.
  
  1. Age Many families with pre-K and elementary school age children provide a weekly allowance based on the age of the child (either fifty cents or a dollar per year of age). With this method, for example, a ten-year-old would earn either five or ten dollars a week.
  
  Some parents give kids one dollar per grade level per week (a fourth grader would earn four dollars a week under this system). As children get older, many families switch to an allowance system that takes actual needs into account.
  
  2. Peers  Some parents base the amount on the going rate for allowances in their area. If this method seems fair to you, ask the parents of your child’s friends what they pay their children and set your child’s allowance at a similar rate.
  
  3. Budget In order to teach money management skills, some parents let their older kids pay for the expenses parents would usually pay with allowance money. To figure out an allowance amount using this method, record everything you spend on your child for a month. Determine which expenses your child will be responsible for and which ones you’ll cover. Subtract the expenses you’ll pay and average the rest. Decide whether you want to include money for savings and for charity. When you arrive at a figure, make sure your child understands exactly which expenses he or she is responsible for.
  
  4. Your Childhood Allowance You can choose an allowance amount based on the amount you received as a child, especially if you think that allowance was effective in teaching you money management. Use an allowance calculator to calculate an amount that is equivalent to the purchasing power of your allowance when you were a kid.
  
  5. Payment for Chores Some experts claim that chores and allowances should be separated (one is meant to teach family responsibility, the other to teach money management). But other experts argue that money should be earned not just handed out.
  
  One compromise between these two conflicting opinions is to provide a set allowance and mandatory chores. Additional chores earn extra money. For example, a child may be expected to make the bed, set the table, fold clothes, and take out the garbage. If the child wants to earn extra money, parents might agree to pay two dollars for scrubbing the bathtub or five dollars for washing the windows.
  
• Hold a Family Summit on Allowances for Kids

  Things to Do Before the Summit

  1. Two weeks ahead: pick a date. Write it on a calendar everyone in the family can see. Explain briefly that the meeting is about each kid’s allowance and make sure everyone knows the meeting is mandatory.
  2. One week ahead: make copies of the Spending Plan Worksheet for each family member. Ask everyone to have the worksheet finished in time for the meeting.
  3. One week ahead: tell everyone to keep track of all their expenses for the week on the Spending Plan Worksheet. Ask them to keep notes on what they spend money on, what other people spend for them, and what things they need money for but can’t buy.
  4. One day ahead: pick a comfortable, quiet location for the meeting. Turn off the TV, the computer, and the cell phones. Choose a setting where everyone can talk and listen easily.
  5. Day of the summit: make the meeting fun. Order a pizza or make popcorn to get everyone in a cheerful mood. The topic is serious, but the meeting doesn’t have to be.

  How to Conduct a Summit on Allowances for Kids

  1. Start the meeting by reviewing each person’s Spending Plan Worksheet. After all family members have had a chance to share, ask people to name any unusual expenses they listed or any usual expenses that were not listed. Discuss whether the list is fairly typical. Take a look at what items each person wanted to purchase but was unable to.
  2. Discuss why saving is important. Ask each family member to give a reason that saving is important. Be sure to cover setting up an emergency fund, saving for college, and using savings as a way of avoiding debt. With younger children, pick a larger item on their want list and figure out how long would it take for them to save up for it (for a ten dollar item, saving two dollars a week would take a little more than a month). For older children, talk about some of their longer-term goals. For example, do they want a car for their junior or senior year of high school? How much would they need to save between now and then? Determine together what might be a reasonable amount to set aside for that goal.
  3. Talk about your family’s values regarding giving. Are there charitable organizations that your child is passionate about? Discuss giving as a family value and also the role you feel giving should play in family life. Talk about the best way to give and let each person establish an amount he or she feels is appropriate.
  4. Establish an amount for allowances. Determine an appropriate amount for allowances and discuss how allowances will be paid (in cash, by check, directly into a bank account, on a particular day, etc.)
  5. Create a spending plan for each person. (See the ShortCut “Create an Allowance Both My Kid and I Will Love.”) Ask your children to have the spending plan ready to show you by the time they are due to receive the first allowance after the summit.
  6. End the meeting on a positive note. Talk about what everyone has learned from the meeting and what strategies you will use when you meet next time.

  After the Summit

  Review each child’s spending plan. Be prepared to help out if asked, but don’t dictate how the child should spend. Rather, offer yourself as a resource to answer questions and help set up any system that might benefit the child such as a jar for savings or envelopes in which to put money.

• Hold a Family Summit on Allowances for Kids

  Things to Do Before the Summit

  1. Two weeks ahead: pick a date. Write it on a calendar everyone in the family can see. Explain briefly that the meeting is about each kid’s allowance and make sure everyone knows the meeting is mandatory.
  2. One week ahead: make copies of the Spending Plan Worksheet for each family member. Ask everyone to have the worksheet finished in time for the meeting.
  3. One week ahead: tell everyone to keep track of all their expenses for the week on the Spending Plan Worksheet. Ask them to keep notes on what they spend money on, what other people spend for them, and what things they need money for but can’t buy.
  4. One day ahead: pick a comfortable, quiet location for the meeting. Turn off the TV, the computer, and the cell phones. Choose a setting where everyone can talk and listen easily.
  5. Day of the summit: make the meeting fun. Order a pizza or make popcorn to get everyone in a cheerful mood. The topic is serious, but the meeting doesn’t have to be.

  How to Conduct a Summit on Allowances for Kids

  1. Start the meeting by reviewing each person’s Spending Plan Worksheet. After all family members have had a chance to share, ask people to name any unusual expenses they listed or any usual expenses that were not listed. Discuss whether the list is fairly typical. Take a look at what items each person wanted to purchase but was unable to.
  2. Discuss why saving is important. Ask each family member to give a reason that saving is important. Be sure to cover setting up an emergency fund, saving for college, and using savings as a way of avoiding debt. With younger children, pick a larger item on their want list and figure out how long would it take for them to save up for it (for a ten dollar item, saving two dollars a week would take a little more than a month). For older children, talk about some of their longer-term goals. For example, do they want a car for their junior or senior year of high school? How much would they need to save between now and then? Determine together what might be a reasonable amount to set aside for that goal.
  3. Talk about your family’s values regarding giving. Are there charitable organizations that your child is passionate about? Discuss giving as a family value and also the role you feel giving should play in family life. Talk about the best way to give and let each person establish an amount he or she feels is appropriate.
  4. Establish an amount for allowances. Determine an appropriate amount for allowances and discuss how allowances will be paid (in cash, by check, directly into a bank account, on a particular day, etc.)
  5. Create a spending plan for each person. (See the ShortCut “Create an Allowance Both My Kid and I Will Love.”) Ask your children to have the spending plan ready to show you by the time they are due to receive the first allowance after the summit.
  6. End the meeting on a positive note. Talk about what everyone has learned from the meeting and what strategies you will use when you meet next time.

  After the Summit

  Review each child’s spending plan. Be prepared to help out if asked, but don’t dictate how the child should spend. Rather, offer yourself as a resource to answer questions and help set up any system that might benefit the child such as a jar for savings or envelopes in which to put money.
• Create an Allowance Both My Kid and I Will Love
  
  These solutions to typical allowance problems will help you create an allowance system the whole family can live with.
  
  Problem: Money is very tight. I can’t afford to pay an allowance.
  Solution: If the family budget is so lean that paying an allowance seems a huge hurdle or a financial crisis keeps you from being able to pay the agreed-upon amount, consider these ideas:
  

  • Base the allowance on what you already spend on your child. Then tell him or her exactly what the allowance is expected to cover, for example, lunch money, toy purchases, or movie tickets. That way you don’t have to look for extra money in the budget because you are simply transferring the financial responsibility to your child.
  • It is reasonable to cut allowances when the family is undergoing financial hardships. Adjusting an allowa helps teach your child how to save when times are tight.
  • If you have to temporarily suspend allowances because of unexpected bills, medical problems, unemployment, or any other reason, explain why this step is necessary. Also, keep track of missed allowances and try to repay them after the emergency has passed.

  
  Problem: The child’s other parent and I can’t agree on our kid’s allowance.
  Solution: Parents often have very different ideas on the amount of allowances, what they should be based on, and how frequently they should be given. Like any other parenting issue, this one can require discussion and compromise. If you can’t reach a compromise, consider letting kids have separate arrangements with each parent. Keep each other informed, but let the child know that any financial negotiations must be made with the parent paying the allowance. This is especially important for parents who are separated and have joint custody arrangements.
  
  Problem: I keep forgetting to pay my kid’s allowance.
  Solution: Take paying your child’s allowance as seriously as other financial obligations. Try one of these ideas:
  

  • Link the allowance to your payday and get the money for your child’s allowance when you cash your check.
  • For older children, set up a bank account with a debit card. If your paycheck is deposited automatically, have some of it diverted into your child’s account. This will help encourage savings and let you teach your child finance skills like balancing a bank account.
  • If you keep a calendar, mark allowance dates on it to remind you when to pay.
  • Set up a reminder on your cell phone or in calendar software.
  • Pay a small penalty (a quarter or fifty cents) for each day the allowance is late. This will demonstrate to your child what happens when people are late paying their bills.

  
  Problem: My kid keeps losing allowance money.
  Solution: As tempting as it may be, don’t make up the money. Instead, do the following:
  

  • Help your child search for the money.
  • Help your child figure out why the money was lost and come up with possible solutions for next time. For example, if your child’s pocket has a hole in it, he or she could buy a wallet with the next allowance.
  • Provide your kid with something to keep the money in such as a bank, an envelope, or a jar.

  
  Problem: My child makes poor financial decisions, so I have to decide how to spend the allowance.
  Solution: Many parents have trouble relinquishing control over how allowance money is spent—especially when a child spends wastefully. Unless the purchases are unsafe or violate your family’s values, don’t interfere. Let your kid make mistakes and learn from them. After all, making mistakes now with small amounts of money is far less costly than similar mistakes would be when your child grows up.
  
  Don’t rescue your child when he or she has misspent an allowance and doesn’t have money for something important. For example, if you expect your child to pay for lunch from an allowance and the money is gone, have him or her make a lunch to take to school.
  
  Problem: The allowance doesn't cover special expenses.
  Solution: Consider teaching your child to manage larger amounts of money by giving a special allowance for specific expenses. For instance, you could set up a gift allowance for birthday and holiday gifts.
  
  Clothing allowances are a good way to teach older kids how to manage substantial amounts of money. Give your child the money you would spend on clothes for back to school or the school year and explain that the money is only to be used to buy clothing. Make sure he or she understands that you won’t be adding any more money to the budget later. If your child asks for advice, give it, but let him or her make the spending decisions and live with the consequences.
  
  Problem: When my kid doesn’t need money, he or she doesn’t do chores.
  Solution: Give your child a set number of unpaid vacation days a year. Explain that there is no penalty for not doing chores (other than not getting paid) for this number of days, but after that, there are consequences such as decreasing the amount of the allowance until your child demonstrates reliability. For example, if your teen has used up the vacation days and decides not to launder the family towels, you could dock the clothing allowance.
  
  Another tactic is refusing to do a chore that your child expects from you such as driving to sports practice or packing a lunch. Point out that since your child isn’t keeping his or her part of the bargain, you’ve decided not to keep yours.
  
  Problem: My kid spends the allowance immediately.
  Solution: This problem will likely solve itself if you don’t intervene. This means not giving advances on future allowances or paying for things the allowance is meant to cover. Let the child experience the consequences of being broke. Your child may be more careful the following week, or it may take several weeks for the lesson to sink in.
  
  If the allowance system is set up for the child to add to savings and give to charity, you’ll need to address the consequences of “borrowing” from the other allowance accounts. One tactic is to let the child can draw money out for specific expenditures and pay back extra money. Since your child is managing the money, let him or her decide on and enforce the penalty.
  
  Problem: My child complains that the allowance is too small.
  Solution: This is a great opportunity for your child to learn financial negotiation skills. Have your child to make a formal proposal for an allowance increase that includes the following information:
  

  • Why the increase is needed
  • A list of expenses
  • How the increase will be spent
  • What additional chores the child is willing to do to get the increase

  After you read the proposal, explain why the allowance is at the current level. Let your child respond. Based on your child’s proposal and the negotiations, decide whether or not to increase the allowance.
  
  Problem: My child lends money to siblings or friends who don’t pay it back.
  Solution: This is a lesson that can be very difficult for a child and the parent who wants to cultivate generosity and kindness. These steps can help.
  

  • Find out exactly what happened.
  • Listen carefully to your child’s explanations and feelings about the incident.
  • Discuss the damage lending can do to a friendship as well as praising your child’s generosity.
  • Help your child find a solution.
  • Discuss what your child will do differently next time.

  If the loan was made to a sibling, include that sibling in the discussion. If possible, try to lead your kids to an equitable solution such as the borrower’s next allowance getting paid directly to the lender—with interest.

• Create an Allowance Both My Kid and I Will Love

  
  These solutions to typical allowance problems will help you create an allowance system the whole family can live with.
  
  Problem: Money is very tight. I can’t afford to pay an allowance.
  Solution: If the family budget is so lean that paying an allowance seems a huge hurdle or a financial crisis keeps you from being able to pay the agreed-upon amount, consider these ideas:
  

  • Base the allowance on what you already spend on your child. Then tell him or her exactly what the allowance is expected to cover, for example, lunch money, toy purchases, or movie tickets. That way you don’t have to look for extra money in the budget because you are simply transferring the financial responsibility to your child.
  • It is reasonable to cut allowances when the family is undergoing financial hardships. Adjusting an allowa helps teach your child how to save when times are tight.
  • If you have to temporarily suspend allowances because of unexpected bills, medical problems, unemployment, or any other reason, explain why this step is necessary. Also, keep track of missed allowances and try to repay them after the emergency has passed.

  
  Problem: The child’s other parent and I can’t agree on our kid’s allowance.
  Solution: Parents often have very different ideas on the amount of allowances, what they should be based on, and how frequently they should be given. Like any other parenting issue, this one can require discussion and compromise. If you can’t reach a compromise, consider letting kids have separate arrangements with each parent. Keep each other informed, but let the child know that any financial negotiations must be made with the parent paying the allowance. This is especially important for parents who are separated and have joint custody arrangements.
  
  Problem: I keep forgetting to pay my kid’s allowance.
  Solution: Take paying your child’s allowance as seriously as other financial obligations. Try one of these ideas:
  

  • Link the allowance to your payday and get the money for your child’s allowance when you cash your check.
  • For older children, set up a bank account with a debit card. If your paycheck is deposited automatically, have some of it diverted into your child’s account. This will help encourage savings and let you teach your child finance skills like balancing a bank account.
  • If you keep a calendar, mark allowance dates on it to remind you when to pay.
  • Set up a reminder on your cell phone or in calendar software.
  • Pay a small penalty (a quarter or fifty cents) for each day the allowance is late. This will demonstrate to your child what happens when people are late paying their bills.

  
  Problem: My kid keeps losing allowance money.
  Solution: As tempting as it may be, don’t make up the money. Instead, do the following:
  

  • Help your child search for the money.
  • Help your child figure out why the money was lost and come up with possible solutions for next time. For example, if your child’s pocket has a hole in it, he or she could buy a wallet with the next allowance.
  • Provide your kid with something to keep the money in such as a bank, an envelope, or a jar.

  
  Problem: My child makes poor financial decisions, so I have to decide how to spend the allowance.
  Solution: Many parents have trouble relinquishing control over how allowance money is spent—especially when a child spends wastefully. Unless the purchases are unsafe or violate your family’s values, don’t interfere. Let your kid make mistakes and learn from them. After all, making mistakes now with small amounts of money is far less costly than similar mistakes would be when your child grows up.
  
  Don’t rescue your child when he or she has misspent an allowance and doesn’t have money for something important. For example, if you expect your child to pay for lunch from an allowance and the money is gone, have him or her make a lunch to take to school.
  
  Problem: The allowance doesn't cover special expenses.
  Solution: Consider teaching your child to manage larger amounts of money by giving a special allowance for specific expenses. For instance, you could set up a gift allowance for birthday and holiday gifts.
  
  Clothing allowances are a good way to teach older kids how to manage substantial amounts of money. Give your child the money you would spend on clothes for back to school or the school year and explain that the money is only to be used to buy clothing. Make sure he or she understands that you won’t be adding any more money to the budget later. If your child asks for advice, give it, but let him or her make the spending decisions and live with the consequences.
  
  Problem: When my kid doesn’t need money, he or she doesn’t do chores.
  Solution: Give your child a set number of unpaid vacation days a year. Explain that there is no penalty for not doing chores (other than not getting paid) for this number of days, but after that, there are consequences such as decreasing the amount of the allowance until your child demonstrates reliability. For example, if your teen has used up the vacation days and decides not to launder the family towels, you could dock the clothing allowance.
  
  Another tactic is refusing to do a chore that your child expects from you such as driving to sports practice or packing a lunch. Point out that since your child isn’t keeping his or her part of the bargain, you’ve decided not to keep yours.
  
  Problem: My kid spends the allowance immediately.
  Solution: This problem will likely solve itself if you don’t intervene. This means not giving advances on future allowances or paying for things the allowance is meant to cover. Let the child experience the consequences of being broke. Your child may be more careful the following week, or it may take several weeks for the lesson to sink in.
  
  If the allowance system is set up for the child to add to savings and give to charity, you’ll need to address the consequences of “borrowing” from the other allowance accounts. One tactic is to let the child can draw money out for specific expenditures and pay back extra money. Since your child is managing the money, let him or her decide on and enforce the penalty.
  
  Problem: My child complains that the allowance is too small.
  Solution: This is a great opportunity for your child to learn financial negotiation skills. Have your child to make a formal proposal for an allowance increase that includes the following information:
  

  • Why the increase is needed
  • A list of expenses
  • How the increase will be spent
  • What additional chores the child is willing to do to get the increase

  After you read the proposal, explain why the allowance is at the current level. Let your child respond. Based on your child’s proposal and the negotiations, decide whether or not to increase the allowance.
  
  Problem: My child lends money to siblings or friends who don’t pay it back.
  Solution: This is a lesson that can be very difficult for a child and the parent who wants to cultivate generosity and kindness. These steps can help.
  

  • Find out exactly what happened.
  • Listen carefully to your child’s explanations and feelings about the incident.
  • Discuss the damage lending can do to a friendship as well as praising your child’s generosity.
  • Help your child find a solution.
  • Discuss what your child will do differently next time.

  If the loan was made to a sibling, include that sibling in the discussion. If possible, try to lead your kids to an equitable solution such as the borrower’s next allowance getting paid directly to the lender—with interest.