Budgeting,  Kids and Money

Giving Your Kid An Allowance (is it time?)

Should I give my kid an allowance? When? How much? Parenting seems like a never ending decision tree that starts during pregnancy and ends...never. Most parents I talk to have the same basic goals for their kids. Many parents want to raise kids who are “good with money.” One tool parents can use to teach kids how to handle money is allowance. Today we are going to talk about giving an allowance (or not), earning it, spending it and saving it.

There is a lot more emotion tied up in how we handle money than first meets the eye. Parents can begin by identifying what values they want to pass along to their children. Do you want to teach your children the importance of saving? Budgeting? Planning ahead? Charity? Do you have environmental values or cultural values that you express by the way you spend money? These are all conversations we can start with our children as we start giving an allowance.

Think of allowance as a learner's permit for money

One of the more important values parents want to pass along to their kids is how to handle money. Not everyone believes that children should receive an allowance. I believe than an allowance can be an important tool for parents to help their children practice handling money. I think of it this way, I wouldn’t let my kid get behind the wheel of a car without learning how to drive. In my mind, that metaphor applies to money as well.

An allowance allows a kid to make mistakes handling money before it really counts. If your kid blows 6 weeks of his allowance on a Star Wars Nerf Gun (this is completely hypothetical…) it’s better if that happens when they don’t have a car payment to make.

Should Your Kid “Earn” An Allowance?

Many parents think that an allowance should be earned by completing certain chores. This would be similar to how a salary is earned by working. Although I understand the logic I’m not a big fan of this approach. It leaves open the possibility that a kid could (try to) refuse to do chores and forgo an allowance. In our house we take a slightly different approach. We have decided that there are certain chores around the house the kids will do no matter what. They are expected to pitch in and contribute to the family. There are a lot of benefits to being in our family (or your’s) and we believe that brings certain responsibilities. Some examples include:

Setting the table

Clearing their own dishes after every meal (and snack)

Picking up their toys

Feeding the dog

Walking the dog

Putting away their laundry

Sorting socks

Wiping down the cabinets in the kitchen

Dusting

Most of these circle around basic personal responsibility, but as your kids get older they can help in other ways as well (helping prepare dinner, handling all of their laundry, doing dishes, mowing the lawn, etc.).

Spending An Allowance

One of the most important parts of giving an allowance is allowing kids to control some of their spending decisions. If you really want your kid to learn to budget and handle money then there needs to be some expectations around how an allowance will be spent. Every year as your child gets older you can hand off more and more spending decisions. This will require more and more money from you, too.

The point is not to save money by forcing your kid to purchase shoes out of their allowance. The point is to teach them that if you give them $50 for shoes and they find a pair on sale for $40 then they can take that $10 and either spend it on something fun or...dare I dream...save it for something later.

Right now the only expectation around my 7 year old’s allowance is that he contribute $3 to any birthday party presents we purchase, and that if he loses his baseball glove again (we’re on #3) then he has to buy the next one. His school offers a Holiday Market where kids can shop without their parents for small Christmas presents (all gifts are under $5). He chose to use his allowance to purchase gifts for the family and was so excited about it.  

How Much Allowance Should I Give?

The answer varies. Around $5 for early elementary school and as they get older perhaps a dollar more per year. After age 10 you can hand off more and more spending decisions to your kid until eventually your kid handles all of the purchasing decisions around items such as shoes, clothes, after school activities and spending money. For older kids I also like giving lump sums (you could equate this to how a bonus ought to be handled) and helping kids think through what they need to buy and then letting them make the final decisions. The key here is that as a parent you do not rescue your kid from their poor spending decisions.

For example, if you give your teen $250 for back to school clothes and they spend $200 on a pair of Beats headphones... That’s tough for them. They will have to make do with $50 to spend on clothes. Now, if they buy everything they need on sale or at Goodwill for $100 and they have $150 left-over to spend on headphones that isn’t a bad outcome. That’s savvy shopping! The point for parents to remember is that while we may not 100% agree with the method kids use, if the ultimate outcome is acceptable then it’s a win.

One key point - do not hand off a spending decision on something that is a “must” in your mind. For example, if it’s really important to you that your child take music lessons, don’t hand off that spending decision to them. This isn’t about forcing kids to spend their money on things we have already decided for them.

We want to provide kids with the framework on how to think through their spending needs plus the autonomy to actually make decisions and live with the consequences.

An Important Caveat

In order to truly give control over spending to our kid(s), we need to refrain from commenting on their spending decisions. While it’s important to help them walk through the buying process (making a list of what they need, looking for sales, etc.) ultimately, the choice is theirs, as are the consequences. Showing empathy but not coming to the rescue or cleaning up mistakes is the hardest part of this whole allowance process for parents. These (potential) mistakes can be the most important lessons and parents need to allow them to be learned.

Further Reading On Giving Kids Allowance

OK, this is not an endorsement, only a suggestion - if you want more details  on how one family used allowance as for money management training try  “Raising Financially Confident Kids” by Mary Hunt.

It tells how one family gave their kids increasing control over their spending in order to help them grow into financially savvy adults. Pick it up at your local library. The idea is not particularly complicated, but she offers some great “dos and don’ts” and has nice sections broken down by age group. It lays out a straightforward way to give increasing responsibility to your kids that I like and it’s definitely worth a read.

On the flip-side she spends a lot of time on the “why” that could have been significantly condensed and some of her ideas are a bit different as they are shaped by her personal experience. All things considered, the plan she lays out on how to increase the level of responsibility your kids have around spending money is solid.

Wrap Up

Is allowance beneficial to kids? Yes. It’s an important tool for teaching kids how to handle money.

Are chores an integral prerequisite to allowance? I don’t think so. I believe chores are a responsibility earned by being a member of your family. Allowance is separate.

How much allowance should kids get? It depends. What are your expectations for how the allowance will be spent? You need to provide enough to cover their needs but not so much that they don’t have to make budgeting decisions. A dollar per year is a rough rule of thumb.
How can we use allowance to teach kids about saving? Great question, that post is coming up next week!

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