Should you give your children an allowance?
It’s a personal decision, but it seems most parents do. According to a 2012 study, “AICPA Survey Reveals What Parents Pay Kids For Allowance, Grades,” 61 percent of parents do pay their kids an allowance. Out of those parents that pay allowances, 54 percent start doing so when their children are about 8 years of age.
How much of an allowance should you give?
If you are among the paying majority, the next big decision is how much? It seems the standard ranges from $.50 to $1.00, times the age of the child per week. The amount should be determined by common sense, your family’s income and your values. But, a general rule is that it should be enough for your child to create a budget.
At what age should you start an allowance?
It depends on the individual child, but they should be old enough to count money at least. With ages 7 to 10, the allowance shouldn’t include items like school lunches, but for older kids it can be beneficial in helping them learn to budget and, of course, the amount should reflect that.
How often should you pay an allowance?
The frequency isn’t the most important thing, consistency is. Whatever you decide, what matters most is you make the disbursement of allowance dollars at the same time each time. It is suggested that to reinforce long-term money management skills, switching from weekly or biweekly to a monthly schedule at about age 10 helps them to learn how to plan and stretch their money from payday to payday. In other words, they learn how to budget those bucks.
Should allowances be tied to chores?
The same 2012 AICPA study says that out of 61 percent paying allowances to their children, 89 percent require them to earn the allowance given to them.
For many it’s reinforcing the simple concept that effort leads to reward. Other parents believe it is more important for their children to learn what it means to be a family member or work as a team. Not everything we do as adults is monetized, and children should learn the difference as well.
Both opinions have merit, so the logical solution is to blend the two ideas, such as outlined in a nickjr.com article, “Understanding Kids’ Allowances.” They suggest dividing tasks into the following: work-for-pay chores and good citizen chores. The article offers suggestions for work-for-pay chores, appropriate for each age group, as follows:
- Help put napkins on the table
- Clear napkins off the table
- Throw napkins away after meals
- Help sort whites and color clothing for washing
- Dust TV screens
- Fill pet bowls with water
- Put newspapers and magazines in piles to recycle.
- Dust a room
- Brush pets
- Sweep outside walkways
- Match socks
- Fold clean laundry
- Bring folded laundry to appropriate room
- Fill and empty dishwasher
- Sort scraps into compost bins
- Vacuum small room
- Bundle and tie paper for recycling.
- Set tables for meals
- Feed pets
- Vacuum a large room or area
- Do laundry (Tip: Have kids start with their laundry, not yours)
- Weed gardens
- Water outside plants
- Help wash cars with an adult
- Rake leaves
- Take out garbage
- Set up a compost bin or compost heap and manage it
- Check expiration dates in refrigerator and purge any outdated food.
As the kids grow, consider anything else you’d like to move off your chore list or that you are paying outsiders to do, such as shoveling snow, washing the car, mowing the lawn or walking the dog. The children can benefit by earning money doing these same chores, and you’re keeping it in the family. But don’t forget to negotiate the fees; after all, kids haven’t got the experience that professionals do.
When it comes to the good citizen chores, the nickjr.com article says, “Kids can and should also perform household chores without expecting monetary compensation. These types of chores help kids learn good personal habits, teach kids to be good household citizens, and help kids appreciate how everyone in the house chips in to help each other. These chores include: brushing their teeth, hanging up clothes or wet towels, cleaning up toys, going to bed and getting up on time, and making their beds in the morning.” Starting early will instill a lifetime of good habits.
Be sure and chart the paying chores and keep track of those completed for payday. Remember, no work, no pay — just like in real life. As children get older, you can increase chores, but always keep in mind to maintain a healthy balance of chores, school and activities. Don’t forget, even adults need their play time.
Should an allowance be divided into spending, saving, and giving categories?
It’s not carved in stone, but it could be an excellent opportunity for your child to learn the importance and consequences of how they spend their money, the gratification of saving their money, and the benefits of giving to others who are in need.
When it comes to determining the specifics, should you provide the guidelines or allow your child to determine the division of their money, or even how they can spend it? Like all things in life, some ‘read the small print clauses’ can be included in your allowance agreement, but it is important not forget that this experience is to allow your children to practice making financial decisions with their money.
So if a mistake is made, the cost will be nominal, yet still real enough to teach them the lessons they will need as adults: saving money; prioritizing goals; discovering the difference between impulse buying and delayed gratification; experiencing the heartfelt satisfaction of giving to others; the pride of earning money for a job well done; and learning that wanting something and needing something isn’t the same thing.
Should you allow your child to borrow against their allowance for something they just have to have?
This could be a great financial lesson for your child, but having some terms in place for the short-term loan may in order: have them sign the receipt (for the amnesia that may develop); don’t give them the item they have borrowed money to buy until they give you the money owed; if they don’t have enough to pay you back, hold onto the item until they have saved up enough to do so; and if the money isn’t forthcoming as agreed, the next payday give them a bill for the item.
A cash advance is much the same, if you decide this is okay, get an IOU. If necessary (you know your child best) ask for collateral up front, an item that is important to the child that they will want back. And, of course, there is always the age-old option of saying no.
Should I give a cash bonus for kudos? Or penalties for undone chores?
Everyone loves a cash bonus for doing a great job, so why not the occasional cash bonus for your kids? On the flip side, what happens when a child fails to complete their chores? The whole idea of assigning chores is to teach a child responsibility. So, a penalty for slackers may be in order, whether that’s cutting TV or computer time or not giving them something they really want. Or, what about your child paying a cash penalty when they fail to follow through, just like in the real world? Nothing hurts worse than giving up hard cash, for adults or children alike.
Use allowances as tools for teaching financial lessons.
Allowances should be used to teach children about money. If your child is always pestering you for a raise or an advance, think of the negotiating aptitude they are learning and not how annoying it is. Instead of grimacing, engage them with terms of this new agreement and hash out the specifics of what the contract will cover, and what it will not. In other words, make it a fruitful negotiation for both parties.
It’s no longer just a matter of putting money in their piggy bank, it’s a digital age. Even the ol’ piggy bank has been updated with separate compartments for different expenses. Consider matching grants to reward your child’s savings discipline — who doesn’t love an employer-matched 401K? For younger children, be sure and count the money with them periodically and tell them how close they are to their goal. For older children, open a bank account where they can earn interest, and when they are old enough, a checking account.
Being a good role model will help your children to develop the financial competence they will need as adults. Be inventive, sensible, and caring. Putting in some time and effort now will give them a strong foundation that will pay back lifelong benefits.