Trying to decide how much allowance to give to your kids can be a tricky issue. It can be hard to find a consensus, varying from parent to parent. But what’s a good allowance for your children?
Usually, it’s recommended to base the allowance on your child’s age. Give them $1 to $2 per year of age. You might want to offer more ways to earn money, by taking on additional chores.
Before you settle on the right allowance, there are a few things you need to consider. This includes the age of your children and the number of chores they are performing. Keep reading to find the right approach to suit your children.
Purpose of an Allowance
When discussing allowances, it can be easy to get tricked into only looking at the dollar signs. Sometimes, we can overlook the bigger picture.
An allowance is about more than just giving kids some money to spend on lollies and toys. If done right, it can be used as a building block, teaching them the basics of money. Here are some of the lessons you should be teaching by providing an allowance:
- Importance of saving. This is the bedrock of a strong financial future. You want your kids to get used to having to wait and growing their funds to purchase the items they want.
- Value of hard work. The allowance needs to be tied to the household chores they are doing. The more work they do, the more money they will receive.
- Teaching financial concepts. An allowance is a good way of learning the basics of the financial system. For example, you can introduce them to a bank account and show them the way that compounding interest works. As they get older, you can even introduce them to the stock market, teaching them how dividends work.
These ideas often aren’t taught in schools, so it’s up to parents to pass them on to their children. It’s no wonder that studies have found 70 percent of adults don’t know basic financial concepts.
If you can teach these ideas, the act of providing an allowance will allow you to set up your children for life. The good news is that it’s easy to instill these values into your children, you just need to start from an early age.
How Much Allowance to Pay
Most parents can agree on the importance of a good allowance. But there are a few differences of opinion about how to implement it.
Usually, these can be broken down into two camps. Those who focus on how old their children are, and those who look at the amount of work they do.
It’s important to point out they aren’t mutually exclusive. For example, as your children get older, you can give them more chores, and increase the allowance as a result.
Age of Your Kids
Usually, the age of your child is linked to the amount that you pay. According to a study from the money tracking app, Rooster Money, the average pay is $1 to $2 per week. The average pocket money amounts look like this:
|Age||Amount of Pocket Money Received|
|4 years old||$5.14|
|6 years old||$6.08|
|8 years old||$8.35|
|10 years old||$10.23|
|12 years old||$11.88|
|14 years old||$14.02|
It should be noted that the allowance paid has been steadily going up. Today, some parents report paying their children as much as $40 a week. Interestingly, a study from AICPA found this allowance increase is faster than adult wage rises.
Number of Chores Done
Another way to start paying an allowance is based on the amount of household responsibility the child is assuming. There are a few ways you can do this. Some options include:
- Job contracts. When you start paying pocket money discuss household chores with your child. Set clear outlines for what they need to do and when.
- Job auctions. List all the chores you want to completed and attach a monetary figure to each one. This is a good way for your children to earn extra income by taking on tasks that are outside their normal responsibilities.
Over time, you will need to increase the amount of responsibility your children are taking on. These discussions can teach them valuable negotiating skills.
Remember, it’s important to tailor these chores to their age. A preschool child might be able to set the table for dinner. But they don’t be able to wash up afterward. It’s also a good idea to use tools like sticker charts to build motivation, especially amongst younger children.
However, it should be noted that this approach can sometimes be a difficult balancing act. It’s a good idea to give your children some responsibilities around the house. But you don’t want to get to the point where you need to give them a financial incentive to help out. They should be doing chores because it benefits the family, not because they expect to get paid. The allowance should just be a bonus.
Other Tips to Get the Right Level of Allowance
If you are struggling to decide how much to give, it’s usually best to give something that will make them a little uncomfortable. It should take them a few weeks to reach their saving targets. Otherwise, there are no lessons to be learned. This is especially important for older teenagers, as it creates an incentive for them to enter the workforce and boost their income.
If your children start to ask for more money, it can be a good way to talk to them about entrepreneurship. Even from a young age, they will be able to start running a simple business and earn a little extra money.
Last (but certainly not least), sit down with your partner and look at your budget. How much can you afford to spend on an allowance each week?
The Amount is Less Important than the Lessons It Teaches
Ultimately, the amount that you give will depend on a range of factors. Though several experts recommend $1 per year of your child’s life, you don’t need to follow this advice. What you do need to focus on is how they use the money.
You need to pass on the basic financial concepts of life. There are a few ways you can do this:
- Setting up a savings goal and encouraging them to work towards a long-term goal
- Encouraging them to set aside some money for charitable donations
- Putting some money into a bank account, so they learn about interest
- As they get older, you can even talk to them about the taxes their savings would incur
- Encourage older children to start a side hustle.
It’s also important to practice good financial practices yourself. Children will learn a lot from watching their parent’s attitude to money, so make sure that you are being a good role model.
When to Start Paying Allowance
Another thorny issue is trying to decide when to start paying an allowance. In most cases, you will need to start around age four or five. At this point, your children should have a good idea of the value of money and how it can be a useful tool to buy the things they want.
Before you start paying an allowance it’s vital to get a clear understanding of the rules. Make sure that both you and your child are on the same page. This can save a lot of headaches in the future.
When to Stop Paying an Allowance
Deciding when to stop paying the allowance is just as important as deciding when to begin. In this area, there is no firm rule. It all depends on your parenting style.
But there are a few guiding questions you can ask yourself, including:
- Do you want your children working while studying? Some parents prefer to pay an allowance so their children don’t have to take up part-time work while studying. Others prefer to encourage their kids to gain experience in the workforce from a young age.
- How are they using the money? Is it getting spent on essentials, or are they spending it frivolously?
Before you stop the allowance, it’s important to make sure that you discuss it with your child. Give them plenty of warning. Then, stick to the decision.
Helping Your Children Manage an Allowance
Once you know how much you want to provide to your children, it’s time to give them the tools they need to monitor their allowance. Like adults, having the tools to track money will be a source of motivation.
How you can do this will depend on their age. Here are some suggestions:
- Younger children. Pay in real money and use jars. They will be able to see the money start piling up.
- Middle-school children. At this age, it’s best to introduce them to a savings account. They will be able to watch their money grow on monthly statements and start earning interest. You can retain control of the account, to make managing it easier.
- High school and older. From this age, they should have control of the account. It’s best to set them up with a phone app, which can help them track their spending.
Common Allowance Mistakes
Deciding to set an allowance can be tricky. It is about more than just getting the right amount of money each week. You also need to make sure that the system is designed to achieve long-term success, teaching your children important financial goals.
Unfortunately, there are a few common mistakes that parents make when setting up allowances for their children. Let’s look at some of these and how they can be avoided.
Failing to Set Boundaries
When coming up with an allowance, you need to be crystal clear on how much your child gets paid and how often. These figures should be set in stone, only revised once a year as they get older.
Sometimes, your child will ask for more money. You need to resist the temptation to give it to them. This undermines their need to save to afford the things they want. Remember, you are a parent, not an ATM. If you set clear boundaries from a young age, you can avoid a lot of problems as your kids get older.
Stipulating How Your Children Spend Their Money
Another common mistake is trying too hard to dictate how your children spend their money. For example, it’s a good idea to try to show the importance of giving to charity. But you shouldn’t have to force them to donate. Talk to them about the importance of helping the less fortunate. But if they still decide not to donate, that’s their choice.
Similarly, if they want to spend all their money on the latest toy, you should let them. Though, as an adult, these choices can seem impulsive your kids need to learn these financial lessons on their own. This will allow them to build the discipline needed to save for long-term goals. Remember, it’s their allowance, they can spend it however they like.
Make Them Responsible For Purchases
When you start to provide an allowance, you are also providing additional responsibility. There are things that you used to provide for free. Now they will be expected to pay for these things themselves.
You can start small, like having them use their allowance to pay for treats at the store. As they get older, increase their financial responsibility. For example, teenagers should pay for things like their phone and data costs. Remember to set clear boundaries. Make it clear what costs you will accommodate and which ones you won’t. Then stick to these rules.
Giving an allowance to your children is about more than money. It’s a chance to teach financial skills, like setting financial goals and learning how to save. This isn’t being taught in school, so the responsibility falls to you. Have frank conversations about money and how to make it grow. This will allow you to set your children up for a prosperous future.
From there, you can begin teaching your children the basics of budgeting, and helping them to understand how their savings rate can help them achieve financial independence. Focus early on the basics of investing once they’re ready to understand opportunity cost for major life purchases. As they learn the importance of money, you can even help them analyze which career they may be interested in pursuing.
All in all, you’ll instill financial principles in your children that will bless both you and them in the many years to come.
Keep climbing, FinBase.