Are you thinking about establishing an allowance system for your kids and would love to learn how to go about setting it up, whether it’s a good idea or not, or even how much you should give your child as an allowance? I’m here to help.
In a recent post about ways you can reward your kids, I mentioned that I had an allowance system and that my kids were able to earn extra by doing additional chores that weren’t assigned to them. I’ve always been of the opinion that simply earning money without working for it equals entitled kids. After all, in the real world, nothing is really ever handed to you, and you do need to work for it.
There is absolutely nothing wrong with you giving your child a reasonable allowance, and I’m all for that. That’s what I do with both Mikael and Madison just so they can have their own spending money. This way, it eliminates the need for them to ask me for cash when they want something. I supply their needs (food, clothing, shelter, and education) and they work on their wants.
Allowances vs Chores
I will say, however, that I don’t think allowances should be given for chores that are expected to be done anyway. These are what we like to call “household responsibilities.” Doing the dishes, taking out the trash, making the bed, and other such tasks should not earn your child money. Instead, they should do these things because it’s their responsibility as a member of the family.
Are Allowances a Good Idea?
At the end of the day, whether or not you give your child an allowance is entirely up to you. There are pros and cons to doing so, and it’s ultimately a decision that every family has to make for themselves.
That being said, I do think allowances can be a good way to teach kids about money. If used correctly, they can help children learn how to budget, save, and spend responsibly. So if you’re on the fence about whether or not to give your child an allowance, I say go for it! Just be sure to set some ground rules first.
I do, however, think allowances are a great idea for kids who go above and beyond their household responsibilities. If your child does additional chores or helps out around the house without being asked, then I think they definitely deserve a little something extra.
Read Also: How to Set Your Kids Up For Financial Success
Pros and Cons of an Allowance
There are, of course, pros and cons to giving your child an allowance. As with anything in life, there are two sides to every story.
Let’s start with the pros:
- One of the biggest advantages of giving your child an allowance is that it teaches them how to budget their money. They learn that they can’t just spend willy-nilly and that they need to be mindful of their spending habits.
- Another big plus is that it helps children become more independent. They no longer have to rely on you for every little thing and can instead start taking care of themselves financially.
- And lastly, allowances give kids a sense of ownership over their money. It’s theirs to do with as they please, and they’re responsible for making sure it lasts.
Now, onto the cons:
- A potential downside to giving your children an allowance is that they may start to expect money for everything they do. If you give them a set amount each week, they may begin to think that’s all they’re entitled to and that they don’t need to help out around the house unless they’re being paid for it.
- Another possible negative consequence is that kids could start using their allowance as leverage. For example, if you tell them they can’t go out with their friends unless their room is clean, they may try to blackmail you by saying something like, “I’ll clean my room if you give me an extra $5.”
- Lastly, there’s always the chance that your child will simply squander their allowance on unnecessary things. They may not be able to resist the temptation of buying that new toy they’ve been wanting and end up spending all their money in one go.
How to Set Up an Allowance System
There’s no one right way to set up an allowance system. You can give your child a set amount of money every week or every two weeks. Alternatively, you could give them a certain amount of money for each chore they complete.
Personally, I prefer the latter system because it gives my kids an opportunity to earn more if they do more. They know that if they want to have more spending money, they need to do more chores.
One important note: do not tie your child’s allowance to their behavior! This will only teach them that they need to do certain things in order to earn money, and we don’t want that. Instead, make it clear that the allowance is theirs regardless of whether they’ve had a good week or a bad week.
Of course, how much you should give your child as an allowance is entirely up to you and will depend on a number of factors, such as their age and what you think is appropriate. A good starting point is $1 per week for each year of their age. So, a 5-year-old would get $5 per week. Of course, this amount can always be adjusted as your child gets older and their needs change.
Remember, the whole point of an allowance is to give your child some spending money, so don’t be too stingy. They’ll just end up asking you for money anyway!
There are, however, a few more things to consider when setting up an allowance system:
These factors will play a role in how much you set aside as an allowance, or whether you can even have an allowance system in your household:
Your Family’s Income and Financial Goals
Your family’s income and financial goals will also play a role in how much you set aside as an allowance. If you’re trying to save money or pay off debt, you may not be able to give your child as much money as you’d like. Again, this is something to keep in mind when setting up your allowance system.
If money is tight in your household, you may not be able to give your child an allowance at all. And that’s perfectly okay. There are other ways to reward your child without involving money. You may also consider giving your child a percentage of your family’s income instead of a set weekly amount. For example, if your family brings in a total of $500 per week, you could give your child 10% of that, which would be $50.
The Number of Children in the Household
If you have more than one child, you may need to re-evaluate your allowance system. It’s not fair to give each child the same amount if they’re not doing the same amount of work. You may need to either adjust the amount you’re giving each child or find a different way to reward them for their efforts.
Your Child’s Age
Older kids will likely need (and want) more money than younger kids. This is something to keep in mind as your child gets older and their needs change.
If your child is very young (say, under the age of five), they may not be ready for an allowance just yet. In this case, you could start them off with a “chore chart.” Each day that they complete their assigned tasks, they get a sticker. Once they’ve collected enough stickers, they can trade them in for a prize (like a new toy or a trip to the ice cream store).
As your child gets older, you can gradually introduce the concept of money by having them help you count out their allowance or giving them play money to “spend.”
Your Child’s Responsibilities
As I mentioned before, your child’s allowance shouldn’t be tied to their household responsibilities. But if they have other responsibilities, such as babysitting or walking the dog, you may want to factor that into their allowance.
For example, if your child is responsible for walking the dog three times per week and they usually earn $5 per walk, you could give them half of their earnings as an allowance. So, if they make $15 per week from dog-walking, they would get $7.50 as an allowance.
Alternatively, you could just pay them their regular earnings from dog-walking and use that money as their allowance. It’s entirely up to you!
The Cost of Living in Your Area
The cost of living will play a role in how much you set aside as an allowance. In a more expensive area, your child is going to need more money than in a less expensive area. This is something to keep in mind when setting up your allowance system.
Your Child’s Savings Goals
If your child is saving up for something specific, you may want to consider matching their savings. For example, if they’re trying to save $100 for a new bike, you could agree to match whatever they save from their allowance. This will help them reach their goal faster and teach them the importance of saving.
Your Child’s Expenses
Finally, you’ll need to take your child’s expenses into account when setting up their allowance. If they have a lot of expenses (such as after-school activities or a cell phone bill), they’re going to need more money than if they don’t have many expenses.
You’ll also need to decide how your child will use their allowance. Will it be for spending money, savings, or both? This is something you’ll need to discuss with your child before setting up their allowance.
No matter what system you decide to use, it’s important to sit down with your child and explain the rules and be consistent with them. This will help avoid any misunderstandings later on. Remember, the goal is to teach your child about money and responsibility, so it’s important to stick to your guns!
Here are a few books that will help you teach your kids how to manage their allowance (money management).
Allowances, Dollars & Sense: A Proven System for Teaching Your Kids About Money by Paul W. Lermitte
How to Turn $100 Into $1,000,000: Earn! Save! Invest! by James McKenna, Jeannine Glista & Matt Fontaine
The Kids’ Allowance Book by Amy Nathan
Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children by Neale S. Godfrey
Your Kids, Their Money: A Parent’s Guide to Raising Financially Literate Children by Clifton D. Corbin
The Art of Allowance: A Short, Practical Guide to Raising Money-Smart, Money-Empowered Kids by John Lanza
Allowance Magic: Turn Your Kids Into Money Wizards by David McCurrach
The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber
Smart Money Smart Kids: Raising the Next Generation to Win with Money by Dave Ramsey and Rachel Cruze
Money Master or Money Monster?: Teach Your Kids the Basics of Money and Have Them Love Every Minute! by Norma LaFonte & Lance Dinahan
In Conclusion
There’s no right or wrong answer when it comes to allowances. It’s ultimately a decision that every family has to make for themselves. It really depends on your family’s circumstances and what you feel is appropriate. However, if you do decide to give your child an allowance, there are a few things to keep in mind. Be sure to consider your family’s income, the cost of living in your area, and your child’s age and needs when setting an amount. And most importantly, be consistent with whatever system you decide to use!
