When she turned 13, our oldest daughter stopped getting an allowance. Instead, we put her “on salary.” She gets a lot more money than ever before. She loves that. She’s also responsible for more of her own expenses than ever before. Her dad and I love that.

We can’t take complete credit for this idea. Mary Hunt over at DebtProofLiving.com based a good part of her book Debt-Proof Your Kids on this exact concept. And Susan Beacham, another of my favorite family money gurus, is a huge fan of giving tweens and teens more control over their finances. I’veĀ  interviewed both of them for my personal finance articles, and I couldn’t wait to use this approach in our family.

Here’s how it works, in a nutshell:

– We pay our daughter once a month. No more weekly allowances. It’s time for her to practice making her money last longer, just as if she were working at a real job.

– We give her money for everything we normally would spend on her. That means:

  • Clothes & shoes
  • School lunch money
  • Gifts for friends and relatives
  • Cell phone minutes. (She has a pay-as-you-go plan; when she runs out of money, she runs out of minutes!)
  • Movies, snacks and other entertainment with friends. (We pay if we go somewhere as a family.)
  • iTunes songs, books and magazines

Yes, it’s a LOT more money than our daughter used to get for an allowance–more than $100 a month. But it’s not costing her dad and I any more than before. This is $$ that was already part of our family budget. We’re simply handing the money over to our daughter instead.

– There are requirements. Our daughter must set aside a % of her money for long-term savings (college) and donating (her choice where it goes) right off the top. She needs to have a 5-minute “budget meeting” with her dad and I every month before she gets paid. She fills out a little budget sheet (at left) to plan where her money will go in the upcoming month.

She’s also required to keep her receipts and jot down all of her expenses during the month, so she’s aware of where her money goes. We review those together at the end of each month. But her dad and I don’t tell her how to spend her money or criticize her choices after the fact (even when it’s tempting!). After all, we want her to make a few mistakes now, while she’s only buying little stuff like jeans and lip gloss. Hopefully, she’ll have a better handle on money when she’s ready for bigger stuff, like college loans or cars.

– The setup is simple. We use a cute notebook (see top image) with zippered sections for each spending category. She keeps her cash in these zippered compartments until she’s ready to spend it–very much like an “envelope system” for an adult budget. Her long-term savings goes to the credit union.

The result? So far, so good! We been doing the salary system for about four months now, and I keep expecting some meltdown or unexpected expense–but nothing so far.

You know who this is hardest on? Me. Every time I instinctively pick up a cute pair of jeans in my daughter’s size on sale somewhere, or see a book she might like, I have to put it down and remind myself: My daughter is in charge of her own purchases now. And she’s great at it.