There are multiple benefits to giving your children an allowance. An allowance can teach them how money works and help them understand that things have a price. So, what amount teaches these money principles without breaking your wallet or giving your kids too much to handle? Here are some tips that can help you plan for your kid’s pocket money and introduce the concept of delayed gratification.
When do I start?
You’ll know that your child is ready to handle an allowance if they understand the concept of exchanging money for goods and services, and they can determine the values of different coins and bills. Using fake money to play a few rounds of “store” can help you determine whether or not they’re ready and give you some quality time together!
How much do I give?
Perhaps the most challenging aspect of allowances is deciding how much is appropriate at each age. As you might expect, there are many opinions about what works best. Naturally, the best one is the one that works for you and your child.
Think about the expectations you have about how your child should use their allowance. For example, do you want your child to pay for their own movie tickets or just for candy and video games at the theater?
An allowance should be enough to cover certain agreed-upon expenses and also allow your child the opportunity to save or share some money.
Try giving your child one dollar a week for every year of age. If you feel that gives them too much money (does a seven-year-old really need $28 per month?), consider cutting the amount in half. To maximize learning and saving opportunities, give your child half of their weekly allowance, and have them save the other half in a savings account or piggy bank.
Making the most of an allowance
Once you’ve settled on an amount that’s appropriate for your child’s age and your spending expectations, there are a few more things to consider:
Be consistent: You should try to pay an allowance on the same day each week. Use caution and discretion when your kid asks for extra money or an advance on their allowance. If your child knows that they will receive extra funds just by asking, they’ll have less incentive to learn how to manage their spending. We all learn through trial and error and feeling the relatively small sting of running out of allowance money one week is a low-risk way to encourage responsible decision-making.
Reward for extra effort: Whether or not you believe that allowance should be tied to chores, consider giving your kid a “bonus” for going above and beyond. When they do extra tasks or apply themselves in new ways, add a little extra cash to their allowance. This may help your child prepare for the workforce and learn the value of working hard.
Encourage saving: Consider helping your child divide their allowance into spending, saving, and sharing “buckets” that are consistent with their own beliefs about using money. Categorizing where money goes can introduce kids to basic ways to manage their money and budgeting skills and encouraging saving early on can help children develop positive habits and behaviors that will serve them well in life. A great visual is a vision board. Create a board together with visual representations of their goals. Whether it’s a new car, gaming system or the latest cell phone, having their goals in front of them can keep them motivated.
Make earning money a habit! As your child grows, consider increasing their allowance according to their age. This increase can motivate them to seek out opportunities to continually grow their income in the future. If their allowance or income changes significantly, consider reviewing their spending and saving and discuss possible changes.
If you choose to give your child an allowance, you are giving them the opportunity to learn valuable financial lessons. Create a system that works for you and your child and take full advantage of the opportunity to bond and teach at the same time.
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