Kids with Allowances: Pay "rent" or not

So I was listening to the radio on my way into work and a discussion was taking place about kids and allowances. A story started the discussion of a mom of a 5-year old who paid her daughter $7 a week for allowance, but then took $5 of it as "rent." The rent money went into a savings account that the mom planned to give to her daughter when she turned 18. The discussion surrounded whether this was actually teaching the 5-year old anything. Reasoning was that 1. a 5-year old doesn't have a good grasp of what money is or means and 2. if she doesn't know that the $5 is going in savings how is she learning that saving money is a good thing to do.

Various callers offered their own experiences and as you might expect comments were as varied as the people who called in. This got me thinking about my own son. As an almost teenager, he does get an allowance of $5 a week (paid bi-weekly just like my husband and I get paid). Out of that, he gives $1 to the church each time we go. He has gotten an allowance for close to eight years (starting with $2 a week when he was in kindergarten). We have talked with him since he started earning money about the benefits of saving and the reward of saving up for something that he really wants instead of spending all his money right away.

As he has gotten older, his allowance has increased as his responsibilities have increased. His has continued to save money and when he thinks about the cost of something versus how many weeks of allowance that cost means, it helps decide if something is really worth it to buy. Over time he has made a few poor choices, which I have let him make so that he learns (typically $5 or less) how to think through decisions on purchases. I can't count the number of times now that we have gone out and he see something he wants but makes the decision to think about it for a week or more before buying it. Most of the time he realizes that he really doesn't need it and that the want isn't as strong as the initial impulse to buy.

In the past year, he has started to house/pet sit for neighbors, mow lawns when people are out of town and shovel driveways/sidewalks this winter. He is not old enough yet for employment at an outside place such as a grocery store or such, nor do I feel he should have to work yet. He needs time to be a kid, working for come soon enough. We (his parents) decided with his input that it was time for him to start thinking about saving more for the future. As a group we came to the conclusion that his allowance and monetary gifts (birthday and Christmas) are his to keep and do with as he likes. Money that he earns from jobs will be split - half to spend and half to save. I am hoping that by starting this thinking early on it will help him once he gets a job to continue on a path with little to no debt.

What are your thoughts on allowances and savings when it comes to kids? There is really no right or wrong answer - just whatever is right for your family.