Allowances Teach Children to Budget Money

Dear Parent Coach,
My kids’ friends are starting to talk about getting allowances, so my children (ages 5 and 8) are now asking for one as well. I never received an allowance as a child, so I don’t know how to go about starting one. I just asked my parents for money and they gave it to me. I do want my children to learn more about the value of money than I did, so I’m willing to try this. It seems like a good idea to start it with the new year. Can you suggest how an allowance might work for young children?
Signed, Mom

Dear Mom,
Congratulations for recognizing the importance of educating your children about the value of a buck. Allowance is a great teacher and a handy tool for learning basic financial know-how such as budgeting, saving, careful choices when spending, comparison shopping and banking. Of course, these are gradually learned over time.
These monetary lessons are best learned experientially, and are usually more deeply absorbed when the money spent is the child’s limited amount, not a parent’s endless supply. Allowance gives a child a hands-on opportunity to practice using money — “my money” — to see how money works in the real world; that it involves responsibility, choices and limits.
The age at which allowance is first given, and how much, is a family decision. However, experts suggest beginning with an allowance no earlier than 6 years old, or when a child shows a sense of responsibility and some conceptual understanding. Starting with a small amount such as $1 or $2, and increasing by another dollar each year, is one way to begin.
If the $1 allowance is given as 10 dimes or various coins, parents can guide a child to divide his allowance into a sectional container marked, “savings, giving, spending.” In addition to allowing instruction about budgeting, a pile of coins seems more abundant to a child than one thin paper bill.
The amount in giving can then be used for church, school outreach projects or a charity. Savings can go toward purchasing a bigger item in the future, or eventually opening a bank account.
As children begin spending their own money, they are introduced to the concepts of making choices and comparing prices on items, to get the best deal. After purchasing a few cheap toys that are broken by day’s end, they become more savvy shoppers and may decide to wait and save for a sturdier choice next time. This teaches delayed gratification and wise spending habits.
After some parental guidelines are set (can’t spend allowance all on candy, etc.), parents should then allow a child the freedom of choice with her own spending money. A parent may want to guide their child in the process of comparing prices and quality, but then should ultimately let the child make the final choice. Mistakes will be made occasionally, which is a great learning tool for next time.
Many parents find that allowances can give children some feelings of power and competency and that it cuts down on begging for items every time they walk in the door of Target. “Would you like to use your allowance for that?”
The biggest controversy about giving allowance is whether or not it should be tied to chores, taking some allowance back if chores aren’t completed or “plucking a buck” as a means of punishment for bad behavior.
Most experts agree that allowance should be used solely as a teaching tool, kept separate from serving as a disciplinary measure. On the other hand, every child in a family should also be contributing to the good of the whole by doing age-appropriate daily or weekly chores.
Chores can be tracked on a chart, whiteboard or by another system. Children should give an accounting of chores completed before being allowed other fun privileges. Withholding fun before their work is finished, is a better consequence than charging allowance money for uncompleted responsibilities.
By starting at an early age with your children, you will prepare your children to be financially savvy long before they head off to college and are required to live within a budget.

1. Introduce allowances at a family meeting, explaining the concept of saving, giving and spending.
2. Determine when allowances will be issued and talk about responsible ways to keep it safe.
3. Start with a foundational amount of $1 and increase with age or determined use.
4. Re-evaluate after one month, making needed adjustments in amounts and expectations.
5. To encourage saving, consider matching dollar-for-dollar what your child has managed to save.
6. For tweens and teens, post “Jobs for Hire” on the refrigerator (with a specified monetary amount for each job) as an opportunity to earn extra beyond their allowance. This emphasizes the further concept that money is earned as the result of hard work. Continue to require completion of household chores as well.

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