Before you begin giving children an allowance, it’s helpful to let them practice making purchases as part of teaching money management for kids. Many experts recommend that if you’re out running errands (perhaps at the grocery store), you give your child a small amount of spending money to pick out one thing they want. When it comes time to purchase, allow them to execute the transaction themselves (while you supervise, of course).
There are other ways you can approach this. David Owen, in his financial memoir First National Bank of Dad, writes that he gives his children a “vacation allowance”—$10 they can spend as they wish while on the family vacation. This heads off the potential argument about whether you’ll buy them that toy tomahawk for them as a souvenir; if they want it, they can buy it for themselves. My wife and I have tried this with my children, and when we provided a reasonable amount of money based on prices at that location, we had great results. My best advice here is to make sure that you set an appropriate dollar amount. If you’re at an expensive store where everything starts at $10, offering $5 is punitive. Make sure you know the basic prices and can settle on a good amount.
A few years back, we were at a restaurant with a small arcade attached. My children were enamored with the claw game and I decided I would try to save them from the inevitable loss of their money. After explaining how they would probably walk away empty handed, my oldest daughter looked at me and said “Dad, it’s no big deal. I’ll just earn some more money.” I still didn’t think it was a good use of funds, but her outlook was fantastic. Not only had I done a good job stepping back and allowing her to make her own choices, but she also knew that I wasn’t just a “bank” for her to use. If she wanted more money, she could make it herself.
Giving children a small amount of spending money before a formal allowance also lets them practice evaluating opportunity costs; if they buy the baseball cards, then they cannot afford the action figure. The basic idea is that you are beginning to empower children to make financial decisions for themselves on a very low-risk scale. If they end up with something cheap that breaks, then that’s an excellent lesson for them to learn before they have to make decisions about a purchase like a car. The more autonomy you can give them in such harmless failures, the better.