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Rule #1:  Limit the Options

Don't offer a weekly allowance.  If your kids want anything beyond basics, they have to earn the money.  Have set prices you will pay for chores, children who want spending money will eventually begin to volunteer.

Rule #2:  Economic Incentives -- Offer Plenty of Jobs

Teach kids chores at an early age and pay them reasonable rates.  For us, the seemingly endless loads of dishes -- about three every day -- became the main chore.  Even small children can handle dishwasher take-out loads, at least if you first remove the sharp knives and use plastic glasses.  And to them, it is a new learning experience.

Rule #3:  Bidding/Auctions

For that run-of-the-mill dishwasher job, we typically had a set price -- somewhere between $1 and $1.50 per load -- on a come-first basis for getting the job.  But at times, there were suddenly many kids competing for the dishwasher job. What to do?  Economics offers a good solution: bidding, where the kids put in lower and lower bids for the job, ending when nobody wanted to go below the latest bid.

Rule #4:  Encourage Your Kids to Come Up with Ideas

Let them use their own imagination of what they can handle and what might be needed for the household.  This works especially well with older kids, who might suggest steam cleaning, window washing or an indoor or outdoor paint job.

Rule #5:  Respect for Property Rights

Should the oldest be obligated to share with multiple little siblings, or should the younger ones have to wait until they have saved up to buy their own?  Some people might argue that, out of fairness, the older child should share his ample possessions.  But if he had to work hard, doing dishwasher loads etc. to buy himself the games, is it really so fair that his siblings would share in the fruits of his labor?

The solution?  The budding entrepreneurs figured this one out by themselves: a fee for rental.