The subject of children’s allowances can get surprisingly contentious. Some parents have very strong opinions about the topic. With this article, we’ll seek to provide helpful, actionable ideas, while doing our best to avoid stirring the pot!
The purpose of an allowance
Primarily, an allowance enables a child to experience the real world of money management. You can teach, lecture, and allow your kids to learn by observation, but there’s nothing like having some cash in their hands to help kids learn about money. In fact, research into the general ineffectiveness of school-based financial literacy efforts overwhelmingly points to one issue: Classroom instruction is far too theoretical; kids need to use real money in real situations in order to learn.
Tied to chores or not?
Here’s where the topic can get heated. Some people are adamant that money should be given to a child only when they do something to earn it. That’s how it works in the real world, they point out. Other than with welfare, no one is going to hand you money without you working for it.
Others say kids should receive some money simply because they are part of the family. It’s the loving thing to do, they explain. Besides, if an allowance is only given in return for chores, the kids may not be willing to do anything around the house to help out if they’re not paid to do so.
Perhaps the best solution is somewhere in between. Give your kids some money — yes, just because they’re part of your family, but also require them to do certain chores (making their beds, setting the table) on a regular basis just because they’re part of your family. Then give them opportunities to earn more money by doing additional, optional chores (mowing the lawn, reorganizing the garage). An important key here is to keep the “base” amount low enough that they’re still motivated to take on additional chores, which will help foster drive and initiative.
How the allowance is to be used
An allowance presents a great opportunity to teach kids about generosity, saving, and spending, so be proactive about teaching them what to do with the money they receive. By practicing giving and saving portions of every dollar they receive right from the beginning, it’s likely those habits will stick as they get older and earn more. As John D. Rockefeller once said, “I never would have been able to tithe the first million dollars I ever made if I had not tithed my first salary, which was $1.50 per week.”
So, from day one, establish guidelines around giving and saving. Use separate piggy banks or jars where at least 10% of every dollar is given toward Christ’s work in the world and a certain percentage is set aside for saving or investing.
Some people advocate teaching kids a 10-10-80 approach: Give 10%, save 10%, and feel free to spend the rest. However, at this stage of life when they have few, if any, fixed expenses, consider teaching them to save or invest a higher percentage, such as 40%.
As your kids get older, consider giving your kids more financial responsibility. Mary Hunt’s book Raising Financially Confident Kids presents an idea we have found very helpful. At around age 10, start giving your kids the money you have budgeted for some of their expenses, such as clothing, and have them manage it. That will teach them more about making trade-offs (one pair of designer jeans or three pair of not-so-designer jeans?), comparison shopping, waiting for sales, and more.
When to start, how much to give, and how often
Kids can understand certain aspects of money at a surprisingly young age. As early as age two, for example, researchers have found that kids can begin to see that money is a means of exchange. It’s an idea they can start to grasp the more they go to the store with you and watch as you hand money to the cashier and then receive groceries or clothing or whatever else in exchange.
So, with an allowance, err on the early side — perhaps as young as three or four, but certainly at least by the time they enter kindergarten.
Common ways to determine how much to give is to base the amount on the child’s age or grade. In the Bell household, we used the second method, basing the amount on their grade plus one. When they were in first grade, for example, we gave each child $2 per week. Of course, using their age would mean giving more. A seven-year-old child would get $7 per week.
As for how often to give an allowance, in the beginning, a weekly allowance will provide frequent opportunities to establish the habits of giving and saving. As they get older, changing “payday” to once a month can help kids learn to plan their spending so the money lasts until next month.
There’s a lot of conflicting and confusing advice about allowances “out there.” Don’t overthink this. Far better to get started and make some adjustments as you go than to wait until you have the perfect system figured out. And if you’re feeling late to the game, the same advice applies to you. Just start. The earlier your kids begin gaining some experience managing money, the better.