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.
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.
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?
Craig Ford is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.