An allowance — a certain amount of money given on a regular basis — is a great way to get kids to learn about the value of money while also learning basic money management skills. Its also a great way to teach responsibility and discipline.
Here we provide information on giving an allowance to your child. Also, along with giving an allowance, to help encourage saving money, see our budgeting section for some helpful lessons.
HOW OLD SHOULD KIDS BE TO GET AN ALLOWANCE?
Start as early as you and your child are comfortable. Kids often develop a very early fascination with money, so they will be very excited to have some money of their own. Kindergarten age is a good time to start — though some parents begin earlier if the child is ready.
HOW MUCH ALLOWANCE TO GIVE?
How much money should kids get? This depends on your own family budget restrictions and personal situation. One suggestion might be $1 for every year of age. So a five year old would get five dollars, and a ten year old would get ten dollars a week. Or start with a certain dollar amount, and increase it by $1 each year. Though, we would suggest giving an amount that is comfortable with you, based on your own child’s spending habits, and your budget. The main point is to give a certain amount on a regular basis.
If your child is older, you might also start by asking your child how much money they wish to receive each week. If they don’t know how much, you could ask them to see how much they might spend each week (which is also a good way to get them to think about budgeting). Then adjust that amount to something more appropriate if necessary.
HOW OFTEN SHOULD AN ALLOWANCE BE PAID?
Allowances do not have to always be paid weekly. Some parents pay their kids at the same time they get their own paycheck, which may be every other week. Others give a monthly allowance to encourage better budgeting skills. Though, we suggest a minimum of once per week.
BASIC MONEY MANAGEMENT SKILLS
Allowances help teach basic money management and economic principles. For example, some parents find that their children often ask too often to buy something when they are out shopping. By giving a allowance, then instead of getting pressure to buy something, you can let the kids decide to buy, if they have an allowance. ”You get an allowance, so its up to you to use your own money.” This way they can begin to learn the concept that money is a limited resource.
CHORES AND ALLOWANCE
Should your child only make an allowance if they do chores? This is one approach that might seem appealing, but it is often considered a mistake.
Having a chore-allowance relationship is not recommended, since it takes away from the money skills that children might otherwise learn. Chores should be considered a family responsibility that should not be associated with money. Also, kids may not do their chores if they only have to give up a small allowance. The purpose of an allowance is to teach money skills, and this may be lost if it is strictly tied to chores, and if the allowance is not regular and consistent.
As a compromise, you may pay a base allowance, and let your child make additional money if they complete additional chores for the week.
Of course, don’t let your children buy everything they want immediately if they have the money. An important concept to teach is the concept of saving. By saving money, we can buy something more expensive tomorrow, if we save our money today. However, at the same time the money given as an allowance is now your child’s, so you must let them decide how they spend it — its part of the learning process.
Though, you can still give guidance. For example, when you are shopping, and your child asks to buy something, always ask them if they are sure if that is what they want, and that they could save their money to buy something better.
Along with the allowance, you can establish some restrictions. For example, you should require the child to set aside a certain amount to save. So if the allowance is $3, for example, then perhaps $1 should be placed in a piggy bank for saving, while $2 can be used for spending. You can even set aside a percent for donating as well.
To encourage even longer-term savings, you may want to give your child additional money to allocate to long-term savings. Long-term savings money should then be deposited to a bank account or other financial institution. Long-term savings could be for college or other long-term goals.
For help with budgeting for different items or spending categories, it may be easier to help your child budget his or her money by setting up a special allowance. For example, for clothing you could give a clothing allowance in addition to the normal allowance. Money for the clothing allowance is only to be spent on clothing.
Some parents find it difficult to always be carrying around their child’s money when shopping. In that case, it may be easier to start a kids bank. With a kids bank, the weekly allowance is ‘deposited’ into a simulated bank account. Then, your child can write a check when making a ‘withdrawal’, and you can directly give them the money.
An extra benefit of this approach is that your child can learn basic checking skills, and practice math. See our checking category for blank checks and a check register to use for setting up a kids bank.
TRIAL AND ERROR
Remember, kids will learn by trial and error. Don’t be too afraid that your children will not spend their money wisely. Its much better that they make mistakes now, when they are young, rather than later in life — that’s what an allowance is for.
Money skills are unfortunately not taught extensively in school, so its up to you to help your kids learn about money and the value of savings!
Earning and Spending Money – Learn about earning and spending money. Learn different ways that people make money. Practice and understand budgeting and taxes.