Children’s Allowance: When to Start and How Much to Give?

Children’s Allowance: When to Start and How Much to Give?

I’m not exactly sure when parents started giving allowances to their kids.  I wonder if that was around the same time when the tooth fairy started stock piling teeth.  However, somehow kids are introduced to the economics of life when they are just wee little humans. On the one hand, some parents say kids should get an allowance when they are very young so they have an opportunity to start interacting with and managing money.  Other parents think they do a disservice to their kids if they just give the money without making the kids work of for it.  Thus, they wait until the kids are old enough to start earning money.

Children's Allowance: When to Start and How Much to Give? 1

Photo by theritters via Flickr

When To Start Your Child’s Allowance?

Step #1:  What financial lessons do you want your children to learn?

This might sound like a meaningless process, but every financially savvy family has important things that they want their kids to learn about money.

I’ve adopted a hybrid to the common approach that money can be used for three things – give, save, and spend.  In my case, I’ve added a fourth category: give, save, spend, and live.  In this way, I’ve made a conscientious decision to try and teach my kids that there are two ways to spend — for living and for pleasure.  I believe that is an important distinction for kids.

Associated with these four components, I want to teach my kids how to manage and how to budget money.

Step #2: Develop a children’s allowance and education system that enforces the lessons in #1.

In our case, we’ve tried to set up a system that teaches our kids there is an association between work and money.  As a result, we’ve given our daughter (our only child old enough to participate in the family plan) a simple, extra job that she gets paid to do.  We’re doing our best to teach her that some work is just a regular contribution to family, while there are other extra jobs that we will pay her to complete.

For us, we’ve got three jars with the words — give, save, and spend written on them.  Two days a week she drops one coin into each jar.  On the seventh day, she chooses any jar she wishes.  At this point, it is too early to try to differentiate between spend and live money, so we don’t make any mention about that.  Teaching kids about money doesn’t have to be boring.

Here are three games to help kids learn about money management.

Step #3: Be flexible and re-evaluate based on each child’s need

Each kid has a unique disposition.  What worked for one of your children might not work for another.  What worked when your child was 8 might not work when they are 10.  This parenting journey is all about flexibility and re-evaluation.  I know as parents we are going to make a lot of mistakes along the way.  If, however, we make a mistake, we should do our best to correct the situation in whatever way possible.

How Much Allowance Should A Child Receive?

This answer is dependent on the age of the child and the responsibilities and expectations of the family.

I’ve heard different guidelines.  Some say give a child $1 per week for each year of age (I read this in a post by Silicon Valley Blogger).  Like Silicon Valley blogger, I think this is far too high.  A ten year old getting 10 bucks a week?

Give kids enough that they get to enjoy a few small luxuries, but not enough that they can buy whatever they want.  Instead, I would rather teach my kids to save for bigger items.  Financial sacrifice and delayed gratification are important lessons for kids to learn.

As such, the amount should be completely dependent on your stage in life.  At this point in my life, I can’t see myself giving much more than $20-30 per month.  When the kids are old enough to want more money, they are old enough to start a summer business.

On the topic of kids and work, it is important that you familiarize yourself with kids Roth IRA requirements so that you can be sure that you don’t use a kid’s allowance as the basis for opening a Roth.  This is the time to start deciding if you will make your kids work for college or pay for it.

Pay Based on Chores or Flat Allowance?

This is the raging debate in children’s allowance circles.

Advantages of chores-based allowances:

  • Kids learn the close relationship between work and salary.
  • Kids will be able to manage their own money.
  • Kids will learn work ethic along with money management.
  • Giving what you own is more valuable than giving what others gave to you.

Advantages of flat allowance:

  • Emphasizes the importance of the family unit.  The family is cared for regardless of one’s contribution.
  • Kids learn the importance of contributing to the affairs of life without expecting any payment in return.
  • Kids will be able to handle money.
  • Kids may be able to start investing if they get a big enough allowance.

As a note, I don’t feel comfortable paying my kids based on grades or other superficial forms of performance.  I want to see character, work ethic, passion, integrity, and commitment from my kids.  None of those things can be measured by a school grade.  In our society, there is already plenty of pressure to outperform peers, and I just don’t want my kids to feel like they have to compete like that.

What are your thoughts on the topic of kids and allowances?

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6 thoughts on “Children’s Allowance: When to Start and How Much to Give?”

  1. I think that children should do chores to earn their allowance =) Especially when they become teenagers… having a lower allowance will limit their money-fueling activities (LOL like partying, underage drinking, spending excessively).

    I scrubbed toilets and vacuumed carpets at one of my dad’s offices when I was in high school (not old enough to work legally) and got paid $20 a week to do it.

  2. In our family we tied allowance to chores and it has taught me and my four younger brothers the connection between work and an income as well as money management. In our system, we started out with our weekly allowance, but if we failed to complete a chore part of our allowance was docked. Pretty soon none of us were forgetting our chores!

    My Dad also came up with a virtual family bank where we could track our balance. In this virtual bank we each have our own account, where we can divide our money into spending, savings, and charitable giving. You can make a virtual bank for your family too!

    To see how it works, check out a video at http://www.youtube.com/user/famzoodotcom and sign up now at http://www.FamZoo.com!

  3. Maybe my daughter is just too young at 6 to understand, or perhaps she is way ahead of me! She decided she didn’t want the money if she had to work (do chores) for it, and that accordingly it was her choice whether to do chores or not. Ughh! I do ask her to do simple chores, but in the way of asking for help at the time (set/clear the table,etc.), or having simple expectations like keeping her room tidy (yeah, still working on that concept), but having a to do list hanging over her head doesn’t seem to work. Rather, I think she gets overwhelmed and has a fear of failure. I’m leaving it for a while (we’re moving soon) but hope to come up with a revised plan by the time school starts again in the fall.

  4. I fall on the side of not giving an “allowance” so much as a “commission” as Dave Ramsey puts it. I like the idea of having a give/save/spend categories – and having the child put aside money for saving, for giving/tithing, and one for spending on things. We would associate the commission that they receive on work that they do, be it chores or extra jobs they do.

    My parents used a similar system, paying me for work done, and not just giving me money for nothing. I think it worked pretty well, and plan on using the same for my kids, once they are old enough to understand.

  5. My parents don’t give me allowance so I end up having very little money. Thankfully, they buy a lot of stuff for me instead. But it still makes it hard to save up for the big stuff, like the horse I want. I am a fan of paying by the grade every quarter. I think a good rate is $15 for A’s and $10 for B ‘s. It can be less if they have more classes. Or, you could do $2 for A’s, $1 for B’s, & .50 for C’s on individual papers.

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