How Much Allowance Should I Give My Kids?
7 September 2006Pretty much anyone who knows even a little about personal finance will tell you that it’s important to start saving young. But it’s also common knowledge that many people don’t. And a big part of why they don’t save as adults is that they didn’t learn good financial habits as children. If you’re a parent, you don’t want your kids falling into this trap. There’s a lot to teach your kids, but one of the most practical ways to teach them how to manage their money is time tested - an allowance.
The problem is that you aren’t going to have any control over how the money is spent. It’s all well and good to lecture your kids about money - but the point of an allowance is that the kids are free to spend it as they please. That means sometimes it’s going to have to be the “school of hard knocks” - your kids are going to have to learn by doing stupid things on occasion. So here’s a few rules you should stick to in setting a dollar amount for your kid’s allowance so they’ll actually learn something from it:
1) Don’t bust your own budget. This is rule number one. If the family is in a financial crisis, the kids are, too - so don’t give them an allowance that goes beyond what you can afford. It sounds simple, but many parents let love for their children force them to do something that isn’t a good idea. If you can’t afford to give your kids an allowance, or can’t give them much, give them a token amount and try to help them find ways to earn money on their own. Don’t spoil your kids by giving them more than the family can afford to.
2) Set the allowance so that it takes 3-4 weeks of allowance money to buy a “big ticket item.” This changes as your kids age, but this is an important rule: you want to teach your kids about saving. So you need to give them an incentive to save. The trick is to make it so that there will be things your kids want that they can’t get without holding onto their money for a few weeks. If you make it take too long, they won’t want to do it - they won’t ever feel the reward part of actually getting what they wanted. If you make it too short, there’s no pain - they learn to gratify their impulses immediately or within a week or two.
Keep in mind that “big ticket item” doesn’t mean a bike or a go-kart. If your kids can buy that in three weeks, they can get pretty much everything in a week. What your kids want will scale up as they get older. So you might try to force your younger kids to save for a $60 video game. $15 a week means they’ve got it in a month. As they get older, they may need a little more money to pay for day to day stuff, but it should still take a little while to get the bigger stuff.
3) Don’t give your kids money or stuff when they beg for it. The point of an allowance is that they have money to spend on what they want. If you break down and buy stuff for your kids whenever they REALLY, REALLY, REALLY want it, then you’re teaching them a bad lesson: that whenever they want stuff, the easiest way to get it isn’t to save up their money responsibly. It’s to go to you and ask for more money. Fast forward ten years when your kids are going out on their own and you’ll see why this is a bad lesson to teach them. If you ever want your nest to be empty at some point, your kids will have to learn to make and spend their own money.
4) When your kids are old enough to work, encourage them to get a part-time job of some kind. It could be fast food, it could be babysitting, mowing lawns, whatever. This is a tough call because you have to set some limits. School has to come first, and your kids shouldn’t be working so much it ruins their childhood. But five to ten hours a week is an extra $30 to $60 a week for a teenager - that’s not going to kill them, and it gives them enough spending money to splurge a little.
Finally, apart from these rules, you ought to read a couple of more detailed books on the subject. The things I suggest above aren’t accepted by everyone - there are a bunch of different approaches people use, and frankly I think that what works may really depend on the personality of both the children and parents. It’s good to look over a few ideas other people have and see if there’s something else you want to try to incorporate into your family plan - for example, many families want to encourage their children to tithe, or give 10% of their allowance to their church. You might want to place certain limits on what your kids can do with the money for some personal reason. It’s a good idea to look around for some other ideas.
There are a few books you can read dedicated entirely to what parents should do as far as an allowance goes, including how to incorporate a chore system. Some of the more popular books are Allowance Magic (a short, 24 page book with an associated web site here), The No Cash Allowance, a book that suggests pretending the parent is a bank to teach your kids more about the real world, and Making Allowances, a more general guide on teaching kids about money that covers the subject in some detail.
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