Should I Give My Kids An Allowance?
An allowance for kids can help teach valuable money skills from an early age. When should kids get an allowance, though? Find out inside.
August 3, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
As parents, we all want our children to live happy and successful lives. And the reality is that money plays a huge role in our modern world — so teaching money skills is very important to set kids up for success.
One powerful way to help pass down financial literacy is by giving your kids an allowance. This can help give kids the opportunity to learn and practice real-life money skills, like weighing the tradeoffs between spending and saving.
This guide will discuss everything parents need to know about giving an allowance to kids — including when to start, how much is appropriate and much more.
How can an allowance teach kids about money?
An allowance is simply a small amount of money that parents give kids on a regular basis — usually each week or every two weeks. The amount doesn’t have to be a lot. For young kids, $5 per week is generally plenty.
An allowance provides children with money that they can begin to use to make purchases or save for larger goals. It will most likely be their first exposure to handling real-world money. As such, it can teach a lot of valuable lessons, including:
Spending vs. saving
Children can either spend their money on whatever they want or save it for a larger purchase or goal. They can learn firsthand the tradeoffs involved in every spending decision and can begin to learn how to delay gratification and save for their future.
To encourage kids to save, parents can sweeten the deal. For example, if they want to save for a $150 bike, you could offer to kick in an extra $50 if they manage to save up to $100.
The value of money
Children may not have a real concept of the value of money until they start managing their own. For example, if you take them grocery shopping, they may not understand that each additional item you purchase costs more money — until you ask them to start making their own purchases from time to time.
If you go with a rewards-based allowance (which involves paying children to complete chores or tasks), this can also instill the importance of a good work ethic.
You can also use an allowance to introduce investing to your children. You could open a custodial investing account in their name, which they can use to start investing in the stock market.
Parents could also choose to mimic investing by providing children with “interest.” For example, you could tell your child that if they save $10, you’ll pay them $0.50 per week in interest. This mimics investment returns in a more tangible way for young children.
When should you start providing an allowance for kids?
There’s much debate on how old children should be before they start receiving an allowance. While there is no clear right or wrong answer, the science may indicate that you should start earlier than you might think.
One study found that children start to grasp financial concepts by age 3 — and that most money habits are set by age 7.
This suggests that starting to give an allowance around the age of 4 or 5 likely makes sense. Again, the amount doesn’t have to be much — it’s simply about teaching the fundamentals of money management from a young age.
Of course, each child develops at a different rate — and some children simply show more interest in money than others.
What is the average allowance that parents give?
According to a 2021 survey, the average allowance is $9.80 per week. Broken down into ages, average weekly allowances are:
Age 4 - $5.12
Age 5 - $5.46
Age 6 - $5.99
Age 7 - $8.05
Age 8 - $8.19
Age 9 - $9.18
Age 10 - $9.8
Age 11 - $11.15
Age 12 - $13.11
Age 13 - $14.80
Age 14 - $15.70
As you can see, a decent rule of thumb is around $1 per year of age, per week — so $5 per week for a 5-year-old, or $11 per week for an 11-year-old.
You don’t need to follow these figures exactly, but it’s a good place to start.
What different approaches can you take with giving an allowance?
An allowance can be structured in several different ways. There are three general approaches that parents should consider:
A fixed allowance is a set amount of money each week. This is the simplest approach. It provides children with consistency, which can be useful for budgeting. It doesn’t rely on the child completing chores or other tasks, which can be both an advantage and a disadvantage.
On the positive side, a fixed allowance shows children that chores are simply a part of life, and that not every task has a direct financial reward (or any reward at all). On the negative side, a fixed allowance doesn’t necessarily help to instill a good work ethic for children.
A rewards-based allowance provides a financial reward to children who complete their chores and/or other objectives, such as maintaining a certain grade point average. For example, a parent may offer $10 per week if their children complete a list of chores and maintain a B+ average. This is the most popular type, with around 59% of parents providing a rewards-based allowance.
This approach can help to teach both sides of the value of money: earning and spending. It can also teach the consequences of not completing certain objectives. On the other hand, it can also make children expect payment for completing any task — which is not necessarily a road that parents might want to go down.
A hybrid allowance meets in the middle: Children are given a flat amount per week, plus a bonus if they complete various objectives or chores.
This approach may combine some of the benefits of both styles. It provides consistency, but also encourages children to go above the bare minimum in order to earn more.
Providing an allowance for kids is a valuable way to teach important money skills to your youngsters. And as the data suggests, starting early — between 4 and 5 years old — is likely a good time to start.
While an allowance can teach financial skills, children also learn by observing their parents. As such, it’s important to practice good financial habits yourself — and don’t shy away from talking about money with your children.
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