Money can be a big deal to a child. I still remember winning a coloring contest in grade school. The first prize was $100 cash. The minute they announced I had won, I knew I was spending the entire prize on a new Atari 2600 game console.
As a parent of four teenagers, money is a frequent topic of discussion in our home.
“Dad, I need $20 for school.”
“Can I spend $15 on a download for my Xbox?”
“Can you transfer money to my card so I can get gas?”
While I’m happy to provide money for my kids’ needs (and wants), we’ve always tried to teach them to be responsible with their money. One of the ways we did this when they were younger was through an allowance. I remember getting a small allowance as a kid from my parents. It felt like a rite of passage in some ways, but I realize now how fortunate I was to have this experience. Later, I would earn more money at home through weekly lawn mowing and other chores.
Kids and allowances
How common is it for parents to provide an allowance for their children? The 14th Annual Parents, Kids & Money Survey from T. Rowe Price revealed that 80% of parent respondents gave their kids a weekly allowance.
While many parents give their children an allowance, there’s an ongoing debate on whether allowance should be tied to chores or other performance-based activities. Tying allowance to chores could help your child develop a positive work ethic, but it could also leave them rushing through tasks just to get paid or always expecting money anytime they help around the house.
An alternative method is to make allowance a benefit of being part of the family. Likewise, you can instill the idea that everyone is expected to contribute to the family by participating in weekly chores. Regardless of which method you choose, there are two guidelines you should follow:
- Have a plan and communicate the guidelines for allowance in your household, how much it is, how and when it is paid, and its purpose. Once you’ve shared the plan, be consistent.
- Don’t withhold allowance as a form of punishment. Doing so strays from the allowance’s intended purpose and can lead to confusion and mistrust. Consider other forms of discipline instead when necessary.
When should you start giving a child an allowance?
Research has shown that children are capable of learning about savings as early as five years old. There’s no universal age when children are ready to learn and understand basic financial concepts. Consider implementing an allowance when your child shows interest in having or earning money. You can also start when they’re first able to count money.
How much allowance should you give?
The average weekly allowance given by parents is about $20, according to the T. Rowe Price survey. However, allowance amounts varied significantly among respondents. Many parents pay an allowance based on age, typically giving anywhere from $0.50 to $2 per year in age. The decision is personal, though, and you should base it on what you feel is best for your kids and fits with your current situation. The frequency is up to you, too. You can pay an allowance weekly or monthly per task or whatever frequency you deem best.
Teaching your child about money
Allowance is just one piece of the puzzle in helping your kids develop financial skills. With different learning styles and experiences, one of the best ways to teach kids about money is to make it a part of everyday life. We earn, spend, and manage money daily, and it’s only a matter of time before our kids do the same.
Start by normalizing money conversations in the home. Make it a topic everyone is comfortable discussing, not a taboo subject. Include your children in financial decisions like which restaurant to get pizza from, which items to include on the weekly grocery list and what activities to choose on vacation.
