An allowance is one of the best ways to teach kids about money. It helps them learn how to handle money, delay gratification, and prioritize, but it also empowers them, giving them some control over their situation and purchasing decisions.
And it’s a pretty good deal for parents, too. An allowance is a way of putting a limit on what kids get—without having to say no or dealing with whining. They get a certain amount and can spend it however they choose. If they don’t have enough for that video game, they’ll have to save up until they do. Goodbye nagging and power struggles.
But before dishing out the dough, there are a few things you need to consider. When will you start giving an allowance? How much will you give? And most importantly, how will you make sure you’re helping your child manage their money?
The answers to these questions will be different for every family, but experts Doone Estey, principal at Parenting Network Inc., and Karen Skinulis, parent coach at Parent Talk, have given us some tips and insights to help you decide the best way to handle allowance in your household.
When should you start giving your child an allowance? When they start asking for things, which is usually around age 5 or 6. “At this age, they are also able to learn the value of different coins and bills,” notes Skinulis.
Two to four dollars is usually enough at the beginning. You want to start small so you have room to go up. As a guideline, Skinulis recommends giving allowance once a week on the same day of the week, so it’s predictable and your child can budget accordingly. It should be big enough that the child can buy one treat if they want to spend it all at once, but small enough that an expensive toy, like a Lego set, would take many weeks to save up for. “This helps teach the value of money,” says Skinulis.
Families should have a friendly discussion about what the allowance will cover, so the child knows exactly what they are expected to pay for with their own money. However, this will change as kids get older. “Children should start by paying for things that the parents view as discretionary, such as candy or toys. As they get older, fixed costs can be added, such as bus fare,” says Estey. Things like buying lunch, clothes, gifts, cell phone bills, and entertainment are all up for discussion with older kids.
You’ll want to increase the amount they get as you broaden what their allowance should cover. “Teens need a lot of practice with handling money to prepare them for adulthood,” says Skinulis. “Adding more expenses can help them learn how to budget, how to prioritize spending, and give them a first-hand experience of running out of money if they don’t plan carefully.”
Giving them a raise and entrusting teens to manage their allowance also builds self-confidence and helps them feel more mature and trusted, Skinulis adds. Just make sure they remember to bring their money to the store with them—it’s part of the responsibility.
While our experts encourage you give your little ones freedom with how they spend their allowance and let them make (and learn from) their own mistakes, you may still want to give some advice and introduce them to ideas like saving, spending wisely, and giving to charity.
“I would recommend that parents set up ‘buckets’ of allowance,” suggests Estey. “Bucket ideas could be one for essentials, one for charitable, one for discretionary and one for saving. Some of these could be set, others not.”
For saving, Skinulis suggests encouraging your kids to open a savings account at the bank and work towards a big goal for the future. And so they feel good about giving to charity, let them choose a charity that they feel strongly about.
To loan or not to loan?
Your child spent their allowance on a scooter, and now they don’t have enough money left to see the latest movie with their friends. Should you give them a loan or a cash advance?
“Credit and cash advances, used carefully, can be useful teaching tool,” said Estey. If the child is often running out of money, parents need to set limits, introduce the idea of paying interest, or suggest ways to make money outside the household, she says.
Skinulis, however, has more of a tough love approach. She believes that the natural consequence of overspending (having no money) is a great learning opportunity that would be spoiled by bailing them out. “Show empathy with their disappointment,” she said, “but have faith they can wait until allowance day.”
Chores for change?
Another topic up for debate is whether or not allowance should be tied to doing household chores. Should kids get paid for pitching in around the house, and should their allowance be withheld if they don’t pull their weight? Both our experts agree that allowance should not be tied to chores.
Kids should be expected to contribute to the household regardless of allowance. When kids are paid for everyday chores, they think of chores as a way of getting something, not as a household responsibility they share in. “When we pay them to help, they learn to ask, ‘What’s in it for me?'” says Skinulis.
That’s why Skinulis recommended keeping the two things separate: “We do chores to help and to pitch in. You get an allowance because you are too young to work, but you need some money of your own to buy things that you want and need.”
However, it is fair to pay a child to do a bigger job outside of their normal chores that you would pay someone else to do. To learn more about how to get kids excited about helping out, check out these 13 Chore Charts and Chore Tracking Ideas.