Is There a Right and Wrong Way To Give Your Child an Allowance?

How do you feel about giving allowance?

In 2017 KRC Research, a public opinion research consultancy, reported that 67% of U.S. parents give their children an allowance, and 49% give their children money for earning good grades in school.

Despite the survey results, there’s little consistency in the way allowance is issued among families nationwide.

Some families distribute allowance based on completion of chores or household tasks. Others issue a set rate so that young children can gain experience managing money. Some families use allowance to curb bad behavior at school or at home, issuing allowance for the demonstration of positive qualities and traits.

Ron Lieber, personal finance writer for The New York Times, posits that these are the three primary approaches families take:

(1) No chores necessary. Children are simply given money weekly or monthly,
(2) No allowance at all, or
(3) No free money. Allowance is linked to chores or other work.

Is there a right and a wrong way to give your children allowance?

Let’s start with the pros and cons, then move into the “when,”“how,” and “best practices” questions we consider when deciding whether or not to give allowance.

Pros

Even if families are opposed to it themselves, many begin to debate the allowance question when children are as young as 5 years old.

Child development and personal finance experts recommend that children start receiving an allowance between 6-8 years old, if it will be given in your household. 

Those in favor cite an ever-growing list of benefits:

  • It helps children learn to save and manage their money.
  • It gives children a sense of responsibility for maintaining their funds or buying things they want.
  • It can help them learn to donate and give responsibly.
  • It can encourage them to complete household chores, perform better in school (academically or behaviorally), or become more financially literate from a very young age.   
  • It can give them a sense of empowerment, from a very early age, over their financial decisions.

Cons

Those opposed argue the following concerns:

  • It can foster a sense of entitlement (if not linked to work) by teaching that money should be freely given.
  • It can undermine household responsibility and the value of shared responsibility (if linked to work).
  • It can undermine the value of personal responsibility and the importance of a strong work ethic.
  • It can impact your child’s work ethic (if they are not motivated by money and, therefore, choose not to complete chores or earn better grades). 
  • It can make children greedy. 

At What Age

Because children as young as three years old can start to understand the concepts of delayed gratification, patience, and sharing, some families issue allowance as early as three years old.

Others recommend starting to issue allowance after a child loses his or her first teeth—in families where the “Tooth Fairy” exists and gives money when a child loses a tooth. This opportunity can be used to set the foundation for personal finance and financial literacy.

Most personal finance experts recommend starting around the age of six or seven years old if you plan to give allowance to your young children. 

How Much & In What Method of Payment

If you choose to give allowance, most experts recommend $1 for every year of the child’s age. For example, a 7 year-old would get $7 each week (or month).

Given the digital nature of our time, experts also recommend using a combination of cash, “credit” (in the form of prepaid cards or gift cards), or online transfers so that young children can understand the different forms money can take.

Another popular philosophy is to give children the dollar amount that equals half their age and issue it every week on the same day, perhaps Friday. This becomes payday. 

Best Practices

  1. Tie allowance to “bonus jobs” not to everyday chores.

Beth Kobliner, author of Make Your Kid a Money Genius (Even If You’re Not), recommends NOT tying allowance to regular chores.

It’s important for children to know that they’re a part of a family, and they will have work to do that’s expected, required, and that won’t be compensated.

Instead, she recommends offering allowance for tasks or “bonus” jobs go above and beyond what’s usually expected.

For example, perhaps the household chores include washing dishes and folding laundry. An “allowance-worthy” bonus task could include raking leaves, taking out the trash, or sweeping or vacuuming the floor.

2. Assign a different dollar amount value based on the complexity of the chore.

In this scenario, each chore would have a different value, and simple chores would be awarded less in value. Regular household chores could include the following, and bonus chores could be anything outside of that: 

  • Making the bed
  • Folding and/or hanging clothes
  • Wiping counters
  • Sweeping, mopping, vacuuming
  • Emptying small garbage
  • Washing the car

3. Integrate a savings percentage goal or donation percentage requirement within your giving allowance.

From a young age, demonstrate the importance of saving and donating money by modeling this behavior and encouraging your child to save at least 20% of every allowance award that you give.

Use earn, save, spend, donate, and—as they get older—invest jars to teach them the value of financial literacy and financial responsibility. 

Resources

If you’re interested in diving deeper, check out these other articles on the pros and cons of giving allowance:

Conclusion

Deciding whether or not to issue allowance is a personal decision, and there is no right or wrong answer about what’s best for your family. 

Research seems to show that giving allowance helps children learn to regulate their spending.

In fact, research suggests that when children are given an allowance, they tend to make the same financial choices whether they spend cash or make electronic purchases. Those who never received an allowance spend significantly more online than those who did.

Additional studies should compare the benefits of allowance over other incentive-based reward systems that don’t rely on money.

Regardless of your philosophy, it’s important to consider the pros and cons, your children’s age, maturity level, and level of responsibility, and the best method to distribute funds, if you decide to give your children an allowance. What works best in your home? 

How do you feel about giving allowance?

Is there a right and a wrong way to give your children allowance?

Author: Anj.

Hi! I'm Anj. Thanks for visiting my page. I'm an aspiring writer, former teacher, and Houston native. I've worked in education for more than 15 years. This blog was inspired by (1) my first year teaching experiences and (2) my lovely student loan debt. Feel free to connect if you'd like to guest post about personal finance.

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