The idea of setting an allowance for kids draws different reactions. Some parents see it as a way to begin teaching financial responsibility. Some use it as a reward for good behavior, and potentially withholding it as a punishment for bad behavior. While other parents think that money shouldn’t be a focus at all for children until they get much older.
Whatever camp you’re in, we believe that the following 7 principles are important …
If You’re Going to Set an Allowance for Kids …
1. Decide on the Age it Will Begin
Children start to be able to count at around 4 or 5 years of age, and they can also understand the simple concepts of “money” and “buying things” around the same time. Within a year of that, they usually lose their first tooth and the tooth fairy visits them with cash!
So, somewhere around the age of 5 is popular for starting an allowance. Tip: Maybe you can tie it to their 5th birthday … “My, how you’re growing up!” This sends a little signal that having money is something that comes with responsibilities.
2. Determine How Much You Are Going to Give
There’s an old rule of thumb that lots of parents have used – it used to be 50 cents for every year of a child’s age. These days the number seems to have moved up to $1 per year (inflation!)
The amount is not really as important as the opportunity to talk about money, and to help children to start managing it in simple ways. More on that in a moment.
When your children get older (somewhere in the teenage years), it might make sense to move off this scale and increase the amount. But the reason for this is that you begin to hand responsibility for certain expenses over to them, and they need to budget their allowance to cover these things. Examples might include some of their clothing, school lunches, or outings with their friends.
3. Settle the Chores Policy
There are different perspectives on whether you should tie paying an allowance to the completion of assigned chores. You might take the view that paying for performance is how the world works, and that’s an important value for children to learn. A day’s pay for a day’s work.
On the other hand, you might decide that the greater values lesson is that a family always work together apart from any compensation.
Surely a case can be made for both of these positions. The important thing is to decide what your policy is going to be, and stick to it.
4. Make the Rules Crystal Clear
The American Academy of Pediatrics doesn’t take a definitive position on children’s allowances, but they do say that if you’re going to have them then the rules need to be clear.
So, if you expect certain things each week before kids receive their allowance, make sure those things are spelled out, and then don’t “shift the goalposts”. Stick to the agreement. And if you require some of the money be put in savings or donated to charity, explain those expectations right from the start.
Which leads in to the next principle …
5. Stay Consistent
Using an allowance for kids effectively requires intentionality. You must see it as a tool, and monitor expenditures and balances with the child.
For this to work, it can’t be hit and miss. Your child should be able to rely on getting their money and using it. So, pick a weekly payday and stick to it.
6. Keep Discipline Separate
Okay, we said at the outset that parents differ in how they see the value and purpose of allowances, and that’s fine. But allow us to weigh in on this one point with an opinion. In order to maximize the value of using an allowance as a tool to teach financial skills, find other strategies to discipline your children.
This may be counter-intuitive, because withholding their allowance seems an obvious disciplinary option. The problem is that parents who use this tend to do so regularly, and then the allowance becomes meaningless for teaching children how to plan the use of money. In fact, it’s worse than that … if kids don’t know when they’ll be paid again, you may find them wanting to spend whatever they get as soon as they get it.
Instead of withholding allowances, use time-outs, restrict screen time, use groundings, etc – all depending on what is age appropriate, of course
7. Have an End Date in Mind from the Beginning
Your kids are (hopefully) not going to be stopping by for their allowance when they’re 25 years old and working a job. So, at what point is it going to end?
One idea is that it should end when they get their first job. But this might not be the best idea. Think of this scenario: you’ve been giving your 16-year-old an allowance of $50 per week, but requiring them to pay for all their own lunches and outings. Then they have an opportunity to take their first part-time job working 10 hours a week for $8 an hour. If you remove the allowance, you will reduce the incentive for them to start working. They’ll essentially be working for $30 extra – or just $3 an hour.
Another solution may be to end the allowance system when your child graduates high school. You may be helping them with college (that’s a subject for another day!), but decide that they should work for any spending money.
The point is, it’s better to think about this early so that you can communicate the plan to your kids along the way.
4 Tips About Kids and Money
1. Teach Them How to Save
One of the biggest missing components in many children’s education is how to handle finances, and specifically how to save for the future. This is terribly detrimental to their well-being (and our economy too!) As a result we are living in a credit-based culture. The Bible gives a sound warning about this when it says “the borrower is slave to the lender” (Proverbs 22:7)... the borrower is slave to the lender. (Proverbs 22:7) Click To Tweet
Build the habit of saving in your kids early! Let them see how putting away small amounts adds up dramatically over time. Open a bank account with them as soon as it’s practical, and show them the power of compounding interest.
What’s a reasonable amount for them to save? We think it ought to be a percentage. That way the amount being saved grows painlessly as income increases. 10% has long been recommended, and it seems to be sound advice. This is sometimes referred to as the “Babylonian tithe” from a book called “The Richest Man in Babylon”. The principle is that you “pay yourself first”. The first 10% is always set aside for the future.
Want to do a little depressing math? Go back and think about all the money that’s ever passed through your hands. What if you had saved just 10 cents out of every dollar? Add the compounding interest you would have made, and figure out how much you’d have today. That one little exercise will powerfully motivate you to teach your kids to save while they’re young – starting with their weekly allowance.
2. Encourage Philanthropy
Wise generosity is another important value that you can instill in your kids while they are young. You can do this by openly discussing with them the charities that you support, and by involving your family in practical community projects.
But it’s also important for them to learn personal financial giving as part of this. Some parents like to set another percentage here. The first 10% of their allowance is for savings, and then the next 10% is for doing some good. They’ll still have 80% left to use for themselves. Tip: Start off with 3 jars labeled “Save”, “Give” and “Spend”. Give them their allowance in notes and coins so they can divide it up easily.
One more thing, encourage and praise your kids when they do their own research and take an interest in some charity or cause.
3. Advances? NO!
A well-structured allowance for kids teaches them about budgeting their money and trade-offs. (Like grandma said, “You can’t have your cake and eat it.”) So, you have to resist the temptation to give your child a bailout. If they’ve spent it all, they have to wait until next week.
4. Foster an Entrepreneurial Mindset
Just about anyone can find extra ways to earn money outside of the family budget. From lemonade stands, to helping the neighbors with yard work and babysitting. The possibilities grow as kids get older. Teach them to look for opportunities to generate extra income.
Once you’ve taught a child this way of thinking, you liberate them from feeling that they are limited by their allowance (and later on their salary).Some of today’s wealthiest people got their start with simple money-making ideas when they were kids. Click To Tweet
Other Methods You Can Use to Teach Financial Responsibility
It’s pretty normal for kids to want to have their eye on a larger purchase. They may want to buy a musical instrument so they can “be in the band”, or a new toy or sporting equipment.
Be available to listen and offer them your counsel. Talk with them about setting a goal, and what it will take to achieve it. Get them a piggy bank, or help them open their own bank account.
Now, when you hear what they want to save up for, you might secretly think that it’s a fad. That’s ok. Be encouraging. Let them work their plan, and they will figure out soon enough if the goal should change. But they’ll have started to make some progress anyway.
2. Establish a “Family Fund”
Consider allocating some of the family budget into a fund that the whole family has a vote on. It may be for an annual vacation, or for buying a new pet. There should be exciting family meetings (not arguments) when you all dream together about the end goal. This reinforces the value of saving, and encourages everyone to work together to accomplish something.
We hope this article gets you thinking. The fact is that different ideas work for different families. You have to figure out what’s best in your home. Whether that includes an allowance for kids or not is up to you.
Whatever you decide, we do urge you to have a plan for teaching your children to be financially savvy and responsible.
FamZoo: An Amazing Tool …
But the world has changed …
Today we are living in a digital economy – everything is done online. And that’s the world we have to train our kids in.
Enter FamZoo. It’s a family finance app that works alongside a prepaid debit card service. It is a great way to:
- to conveniently give your kids their allowance
- monitor their usage
- keep their money safe from loss or theft
- help them plan savings, giving and spending
- thoroughly educate them about financial responsibility
- and prepare them for life in the 21st century
It is easy-to-use, amazingly affordable, and completely customizable for your family’s needs and preferences.
Check out their site, and you can watch a 6 minute video that will get you started with everything you need to know.
When we came across FamZoo we thought it was the greatest thing we’d never heard of! We’re so glad we stumbled on it for our own family.
We highly recommend it.
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