Ryan is financially savvy, you could say. When he discovered that his mom had taken a hundred dollar bill from his wallet, he immediately demanded she pay him back – with interest.

“Now you owe me a hundred and one dollars,” he said.

In another kid-defying moment, he seemed to regret buying a toy.

“I spent too much money today,” he relented after a visit to Toys R Us.

Ryan is 5 years old. These scenarios sent my mind into a dizzying spell. I couldn’t wrap my mind around a kid showing remorse for obtaining a toy, perhaps because my kids seem to have no conscience about dents made in my wallet. But upon deeper consideration, it made sense. There was a reason why Ryan, the financially conscious kindergartener, was the way he was.

Ryan’s money was his money. He has a Spider Man wallet with bills in it to prove as much. What didn’t get deposited (yes, he has his own checking account) was discretionary funds he stored in his wallet and could spend with mom or dad’s okay. There was a sense of ownership that seemed to make him accountable and startlingly aware of what he spent – or what his mom borrowed.

Suddenly, it dawned on me why all of my incessant talk about how it’s not good to waste daddy and mommy’s money seemed to go in one wallet and out the other. I tried all of the arguments too, from there are better ways to spend money to it’s more important to put food on the table. And in all of this, I had failed to ignore the cardinal rule: the way to motivate people is to create a vested self-interest. Why did I think kids were any different?

According to a T. Rowe Price survey, kids who receive an allowance are more money savvy. Allowance puts money directly into the hands of your kids, transferring ownership from mom and dad to the child. As gatekeepers, they’ll begin to weigh the pros and cons of depleting funds and learn the value of money. In short, allowance is a great educational tool. Through allowance, you can teach your child about saving, sharing and smart spending.

There are many variables, however, to consider when it comes to allowance. What’s a good age to start? Should you make them earn it? What forms of contributions should merit payment? And how much is appropriate? In formulating the right decision for yourself and your children, here are some factors to consider.

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