Setting an allowance for kids
Quick insights
- Setting an allowance is a personal choice that will vary by each family and every parent’s goals for their child.
- Allowances can be given in any amount and on any regular basis, including as compensation for completing household chores or for no reason at all.
- An allowance can encourage independence, help develop financial literacy and prepare children for managing money as adults.
Not everyone grows up getting an allowance, but that doesn’t discredit how useful it can be for various families. How do you set an allowance, though?
What is an allowance?
The concept of an allowance is simple: to give a certain amount of money on a regular basis. This is usually parents or guardians giving money to children. There aren’t set rules about the amount and timing, which often vary from one family to the next.
Why give a child an allowance?
Giving an allowance is commonly used to teach children responsibility and develop their financial literacy. Money has value in society, and it’s a part of adult life. An allowance can serve as an early financial tool that teaches those lessons. More specifically, it can help children learn how to save and spend money.
Sometimes the allowance compensates a child after they complete chores. This could teach children about earning money, one pillar of financial literacy. However, even when provided unconditionally, an allowance can prompt kids to figure out how to manage their own money.
How to set up an allowance for kids
To set up an allowance system, you’ll first need to determine how you want to pay, how much and how often. For example, maybe you want to give cash—small bills or pocket change. It can teach the importance of protecting and keeping track of physical money.
You could also open a checking or savings account for a minor. This is an opportunity for a child to learn about banking, budgeting and setting goals. With online banking platforms and custodial accounts, parents can deposit money directly, track account activity and more.
Regardless of the amount, frequency and delivery method you use for an allowance, it’s beneficial to set clear expectations and rules. Communicate how money will be awarded and discuss how it is used on a regular basis. Discussions about money are about as important to developing financial literacy as actually managing money.
How to decide on a kid’s allowance by age
One simple way you could choose a dollar amount for a child’s allowance is to use their age and offer $1 per year. You’d award a $10 allowance to a 10-year-old, for example. This can also serve as a framework for adjusting the allowance as children get older, when their financial needs, wants and understandings change.
Of course, various factors will influence the amount of allowance, such as a child’s and family’s financial needs.
When should you start giving your child an allowance?
Your choice of which age you want to start giving an allowance is a personal one. However, a good option might be once your child shows signs that they understand the basic concepts of money. These might be spending, saving and even overspending money. Whatever age that happens could be your opportunity to develop a sense of financial responsibility with an allowance.
Because there aren’t any strict rules to follow when giving an allowance, you can base the amount and timing on the child. As their knowledge deepens and they get more practice, you can make adjustments. You might even find it helpful to involve the child in the initial decision. Discuss the concept and responsibility of an allowance to gauge their interest or understanding.
Linking an allowance to doing chores
Tying an allowance to completing chores can teach children that money is earned by working. Someday they might grow up and need a job—most people do. This could develop a child’s work ethic and might make them actually want a job when they come of age.
The potential for an allowance to help a child understand how to budget and save doesn’t go away when they receive it for chores. If anything, a system that rewards responsibility and work ethic could be vital in adult life. Learning the benefits and responsibilities of earning money can have a lasting impact.
Age-appropriate chores for kids
The chores you can assign a child will depend on their physical skills and development. At five years old, for instance, few children can successfully wash a sink full of dishes. But look around—there are probably several household responsibilities that could be a good fit for your child to complete.
To help you decide on age-appropriate chores, start with small or straightforward tasks: putting away toys and making a bed. You can always test a child’s ability to complete a task before assigning a chore and tying it to their allowance. Are they strong or tall enough to push the vacuum? They can work their way up to more demanding chores as they grow.
In summary
An allowance for a kid can be a tool that teaches financial responsibility, budgeting and the value of money. The age at which you start giving a child an allowance will vary based on their initial understanding of money. An allowance can be structured based on age, chores or specific financial goals. In any case, you’ll have to decide how much, how often and the method you use to pay an allowance.
