Parent’s Guide to Giving Allowance

Whether or not to give kids allowance is a hotly debated topic in many parenting circles. Find out why allowance is a good idea and how to give it to your kids.

Money talks, and so do kids. Especially when you take them shopping and they see something on a shelf they want you to buy for them. What’s a good way to deflect “The Gimmes”? Give them an allowance! Roughly 60% of all children receive an allowance, or a set amount of money given on a weekly or monthly basis that they can spend (or save) as they wish. Parents, child experts, and financial gurus see allowances as the first lessons in personal money management.

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“When you introduce allowance you have the opportunity to teach your child how to control impulses and delay gratification,” says Susan Beacham, a former private banker who founded Money Savvy Generation, an Illinois company that teaches personal-finance concepts to families. “Just like we teach our children good hygiene, good manners—anything that’s a critical life skill—that’s what we have to do with an allowance.”

Among the many life lessons allowances can teach:

• How to pay for things in a store
• Real-life math skills
• What sales tax is
• Budgeting and anticipating expenses
• Decision making
• Prioritizing expenses
• Delaying gratification
• Bargain-hunting
• Discerning the quality of products
• The benefits of savings

When Should I Start Giving an Allowance?

According to parenting expert and Peace In Your Home Master Instructor Susie Walton, “The time to start an allowance is when a child is in a store asking you to buy everything. Normally the first born will wait on this, but the second born will ask earlier. I’ve known 4 year olds that can handle a small allowance.”

Money awareness begins at a fairly early age. Kids as young as three years old understand the concept of money. They may not be able to count their coins, but they will know what the coins are used for. You can start by giving 3 or 4 year olds coins to put in a piggy bank. They will be able to see the contents in the piggy bank grow as time goes on. This in itself is a good foundation for teaching them money skills.

When children make the developmental shift from understanding money in this rudimentary way to having concrete knowledge of how money is used is when a regular weekly allowance can really make an impact. This usually happens between 5-7 years old.

There is a lot of debate about whether allowance should be given unconditionally or whether allowances should be tied to household chores. Peace In Your Home’s stance is that allowance should be kept separate from household duties. To read more about why, read the article Should We Tie Allowances to Chores?

Whatever you decide to do in your home, allowances can empower children and teach them how to make informed decisions about their money.

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How Much Should They Get?

The amount of allowance kids should receive weekly depends on the age of the child and the family. Many experts like to recommend one dollar a week for each year of age, while others recommend half that. A good starting point is to talk to other parents in your area to see what they’re doing in their homes.

To get an idea, a national 2005 survey of nearly 1,500 children by the research firm Yankelovich, the range in allowance for 6- to 11-year-olds is $5 to $9 a week. For 12- to 17-year-olds, the average is $10 to $19 a week, and around 15 percent of 12- to 17-year-olds received $20 to $49 weekly.

If your child hasn’t been receiving an allowance, you could determine how much it should be by estimating what you already spend monthly to buy your child all those extras, like toys, video games, fashionable clothes, and going-out money. Divide that amount by 4 and you will have a weekly allowance amount that pretty accurately matches what you’re already spending anyway.

Establish What They’re Expected to Pay for with Their Allowance

Some parents require their children to pay for lunches, cell-phone bills or afterschool snacks with their allowance. Sit down with your kids and decide what expenses the allowance will cover, and try not to underestimate a kid’s “cost of living.”

And don’t forget to factor in the fun extras that kids want (and that you probably already pay for anyway). Janet Bodnar, author of the book “Dollars & Sense for Kids”, advises giving children enough of an allowance so they can squander it, but not so much that you’ll be upset when they do.

Spend, Save, Give

Walton also suggests helping kids allot a portion of their allowances toward savings and giving. Now, allowances are given primarily for kids to manage their own spending, but if you add extra so they can save and give, you will be teaching them the virtues of each.

Some suggest a formula of 80% spending, 10% saving, and 10% giving. You might decide to put more towards savings. There are even clear piggy banks made that have different compartments and slots for these three categories, plus the fourth of “investing” to help younger children visualize these concepts and make them more concrete.

Will You Allow an Allowance?

Besides the benefits of empowerment and financial know-how that kids gain from receiving an allowance, parents also have benefits.

“You’ll never have to tell a child no at a toy store again!” raves Walton. “Just ask them how much allowance they have.”

If you’ve decided that giving your kids an allowance is a good idea for your family, you will want to read the other article in this 3-part series: 3 Simple Allowance Rules for Parents and Chores and Allowance: Should Parents Pay Kids for Chores?

by Pamela Layug Laney