Parents have so many decisions to make and so many responsibilities to fulfill. Giving your kids an allowance may not be at the top of your list, but it is an opportunity to provide children with valuable life lessons about money, charity, delaying gratification, and much more.
Experts in both child-rearing and financial literacy believe that an allowance is a great way to teach children to be responsible with their money, lessons that provide a building block for a lifetime of handling money.
By some estimates, about four out of five parents do provide allowances.
When to Give an Allowance and How Much?
The first questions many parents ask are when to start giving kids an allowance and how much to pay.
The timing may be earlier than you might think. Kids can start to learn about money when they are in pre-school, so it’s increasingly common to give four-or-five-year-olds a modest allowance.
As for how much, there is no “right” answer, but many parents begin by paying younger children their age in dollars each week. For example, a five-year-old would get $5 a week and a six-year-old would get $6 each week. (This may be one of the few areas of your budget not impacted by inflation, as parents used that same formula decades ago!) Once the kids get a bit older, you might want to start paying more.
Here are the average weekly allowances, according to a study done by RoosterMoney:
- 4-year-olds – $5.12
- 5-year-olds – $5.46
- 6-year-olds – $5.99
- 7-year-olds – $8.05
- 8-year-olds – $8.19
- 9-year-olds – $9.18
- 10-year-olds – $9.85
- 11-year-olds – $11.15
- 12-year-olds – $13.11
- 13-year-olds – $14.80
- 14-year-olds – $15.70
It is usually advisable to pay the allowance on a weekly basis, rather than every other week or monthly. Remember, you’re trying to teach skills here, and the lessons are more easily learned if they come up on a frequent and regular basis. That regularity can give children some structure and predictability. Also, kids’ time horizons are different than adults. Waiting a long time between payments can be difficult for them.
Should Kids Have to Earn Their Allowance?
The next thing to figure out is if you want to tie the allowance to chores. A growing number of experts now lean towards keeping the allowance separate from chores. Some household responsibilities, such as making their bed or cleaning up a room once a day, are expected of everyone. But you can still pay them extra to do other age-appropriate jobs around the home that go beyond the day-to-day expectations you’ve set up. Pay a flat rate, say $2, to give the dog a bath, or for older kids, $10 to rake the leaves. You can even encourage ambitious kids to suggest ways in which they can earn money in addition to their weekly allowance.
The idea behind separating an allowance from household chores is that you want young children to learn about handling money, as opposed to earning it. You also avoid the potential conflict that they will only do work around the house if they are being paid to do so.
Once you’ve established the ground rules on how much and how often, you can start to guide your kids on how to be responsible with money. One option is to teach them the bucket (or jar) approach: a bucket for handling short-term wants and needs, another for saving towards a bigger purchase, and perhaps a third for charitable giving.
Some parents, in an effort to encourage savings, will offer an incentive – a 50 percent or 100 percent match for each dollar put into a savings account. You can help your child set up an 80-10-10 plan – 80 percent for spending, 10 percent for saving, and 10 percent for charity – or vary the percentages to your preferences.
An Allowance Offers Teaching Moments
Simply handing money over each week without imparting lessons is a missed opportunity in parenting. Make the process a teachable moment and remember that financial literacy is not a one-time conversation. It requires an ongoing process of adding more knowledge, responsibility, and choices as your kids get older. This involves everything from knowing the difference between making an impulse buy now as opposed to saving for something bigger and better sometime later. It might also mean allowing children to make (small) mistakes with their money. Also, encourage them to talk about what they plan to do with their money, and then discuss why that’s a good idea or other options that may make more sense.
And if they are encouraged to put money into the charitable giving bucket, it can open the door to teaching about the responsibilities and benefits of helping others. They can become part of broader family discussions about how and to whom you contribute your funds to. Your charitable giving priorities can impact future generations.
You also have the opportunity to teach the kids about budgeting, saving, setting goals, and money management. This doesn’t happen all at once, but in bite-sized chunks that are manageable and that build upon each other, week by week and year by year.
And here’s an immediate benefit for you, the parent. Joanna Nesbit, writing last year for hermoney.com, says allowance money can get you off the hook when you’re in the grocery store line and hit up for candy. Let the child decide if they want to use their allowance money. That is teaching responsibility and decision-making.
John Lanza, author of “The Art of Allowance,” says that your teaching cannot be just lecturing. Any parent knows that has its limits. He says giving kids an allowance is an opportunity to “share your values around what you think matters.” He also recommends that parents do not use the allowance in a punitive way. Don’t take it away when you are angry or disappointed by their behavior. Again, remember that the aim is to teach financial literacy and set up money habits that will benefit your kids for a lifetime.
One final note: experts say that even though cash is very old school right now, it’s still the best way to teach about money and the temptations to spend it. There seems to be no doubt: giving kids an allowance offers valuable life lessons.