“Mom, can I have…” is a staple in American culture. Depending on your child, it could start with candy and quickly expand to a toy, a cell phone, and eventually a car. As our children grow, the cost of their wants increase. An allowance for kids can be a great way for them to develop good money management skills and a better understanding of how household income is allocated. It might even make it a little easier for your child to understand why they didn’t get that new skateboard.
An allowance for kids can teach them to carefully prioritize wants, to consider how much things cost, and to appreciate things that they purchase with their own money. These are important stepping stones toward a bright financial future.
When to start an allowance?
A good age to start considering an allowance is about age five. Kids are ready at different ages, so consider your child’s maturity level. Does your child understand the concept of giving money and receiving something for it? Do they know the different values of coins and bills?
How much allowance is enough?
Some experts recommend aligning the amount with your child’s age, for example, $5 for a 5-year old. However, it’s important to make your child’s allowance commensurate with how you expect them to use their money. Do you expect that your child will pay for their round of mini-golf? Or simply a candy bar after mini-golf? That’s up to you.
Make your expectations clear
Clarity is important. Your child should understand their allowance amount and what they will have to pay for themselves. Perhaps you’ll pay for jeans, but if they want name brand jeans, that’s up to them. Or, maybe you’ll pay for all clothes, but they pay for activities with their friends.
Experts caution against paying your child for household chores. A child should contribute to household chores because they are part of the household. However, if you’d like to pay them for going above and beyond, that is an option. For example, a longer walk for the dog or cleaning up the garage would be an extra effort for them, which deserve an allowance.
How often should I pay an allowance?
Pay your allowance for kids on the same day each week and set an expectation for making the money last. If you let your child borrow into next week’s allowance, they may not grasp the concept of making the money last.
For older children, however, this could be an excellent opportunity to engage your child in the concept of borrowing money. Let them know that they have to pay for that privilege, just like adults pay interest when we borrow money.
Evaluate how it’s going
Kids grow fast and you may consider adjustments, raises, or changes in your agreement. Continue to assess your allowance system every six months and talk over your arrangement with your child. You can review how they've been spending and saving their dollars and discuss possible increases. This is the perfect opportunity to impart some of your own values and financial wisdom.
Most importantly, don’t forget to pat yourself on the back for your efforts! Your child’s good financial habits can last a lifetime.