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Give kids an allowance to learn about money and how to budget

Allowances often present dilemmas. Is it better to give your children an allowance or should you pay as they go? While the former has its own set of problems, the latter can rob children of the opportunity to learn money management and responsibility. Many children would prefer the ask-and-receive method—although it comes with the risk of a “no”—because it usually means they get more money and it’s often easier.

Allowances give children some independence and helps them develop skills for saving and money management. Allowances work best when parents are clear, fair, and consistent, and include their children in the decision making of how allowances work. 


Do determine what the allowance is for

For young children, about ten and under, keep it simple. Keep the amount modest, and allow them to spend on extras, like a toy or book or treats. This way, when you are in the store and they ask for gum, you can tell them to use their money. You can also require or suggest they put some money away so they can save for something big.

As children get older, they start doing more things outside the house, so perhaps an allowance includes money for the movies, or you can have them contribute to the price of the ticket. Some parents give enough allowance that they expect their children to buy their own school lunches. It is important that children have some choices about how they spend their money.

Do decide what you can afford

In this age of competitiveness, it may be tempting to indulge your children and give them what you would like them to have, rather than what you can afford. Avoid this pitfall, because it doesn’t serve you or your children’s best interests. You have to live within a budget and they should as well. Determine what amount you can afford, one that you will be able to follow through on for a year. It is better to give less, than give too much and have to cut back.

Do decide what is age appropriate

Clearly, no one is going to give a six year old $50 a week! Yet that might not be too much money for a 16 year old if he needs to factor in school lunches. Six-year-olds do not comprehend the value of money; they are just beginning to understand numbers. This a great time to teach them how much things cost and to help them understand limits. But it is important to do it in manageable amounts. Saving for a bike is too much for an eight year old, but a new video game is attainable. Older children have a concept of money, yet still need help with values and choices. Start small and see how they do.

Do include your children in the discussion

You might have to determine the bottom line, but certainly give your older children some say in what’s reasonable. List what you expect the allowance to include, and put a dollar amount next to each item. See if it is realistic. Be willing to engage in reasonable negotiation. Listen to their input. When they feel a part of it, they will take more ownership. Again, you need to consider the age of your children. Six-year-olds will most likely be thrilled with any amount of money. Your 15-year-old will be more than willing to negotiate!

Do be consistent

The best plan will not work if you don’t follow it. It’s best if you give your children the money once a week, perhaps every Monday or every Friday. If you are religious about this for three months, it will become a habit. Then if you forget or are short on cash, you are more likely to quickly get back on track. Your older kids will remind you when you forget, however, if you keep putting them off in the beginning, they will give up. Random payments will be frustrating and confusing, and will reduce the opportunity for learning.


Do not make the allowance contingent of the completion of chores

While this has traditionally been the plan, it often doesn’t work. This approach takes too much work. Parents have to keep track of the completed chores, and with the busy schedules parents have today, it is close to impossible to accurately do this. If the chores are not completed, parents often get angry, kids get upset, parents get to be the bad guys, and the kids believe they have been unfairly treated. Another scenario is that the parents feel sorry for the kids and pay them anyway. What are the kids learning here?

Assign the kids chores, so they learn that everyone in the family has some responsibilities, just because they are part of the family and they don’t get paid for it. Give them an allowance because they need to learn about handling money and budgeting.

It is okay to pay kids for extra chores. For example: older kids could have the responsibility for babysitting every Wednesday night when Mom and Dad have meetings to attend, but get paid for babysitting on a Saturday night. Sometimes, these extra chores could be set up as optional, as long as parents are really okay with saying “No.” 

Do not change the rules randomly or suddenly

Nothing bothers kids more than unfairness. If you change the rules without a good reason, you’re reneging on a contract. While children need to learn that life isn’t always fair, you can still respect your children’s feelings by explaining why you have to decrease their allowance or postpone payment and let them know you can understand their annoyance or disappointment.

Do not forget to review how things are going

Periodically sit down as a family and ask how the allowance is working out. You can see if the amount is realistic, or if they are wasting money. It seems that every family has a spender and a saver. Use the discussion as an opportunity to explore the benefits of saving.

See if the siblings can learn from each other without your having to say a word: “So, Pat, why do you think Morgan had enough money for the video game? “ or “ What would you do differently this week?”. You might want to see if one child wants you to put half of the weekly allowance away so it doesn’t get spent. You may also have to tolerate children’s frivolous spending as long as they are abiding by the rules.

Do not forget about pay raises

Prices rise for kids as well as adults. There are several ways to work this out. You might want to raise the allowance every September. Budget-wise, it might be better for you to raise their pay when your pay gets raised. In addition, you might want to raise the amount with every birthday, or with each grade level. This way the children have something to look forward to, and can see that milestones mean more responsibility and privilege.

Do not withhold the allowance as punishment

It is oftentimes difficult to find consequences that are meaningful for children, so it can be easy to withhold allowance as a punishment. For the most part, a punishment should fit the crime. If your teen hasn’t been doing his homework, withholding the allowance doesn’t make sense. Take away Friday night out instead, so they can sit home and finish the homework. If you take away an allowance, you will most likely end up repaying somewhere else.

Jumping cartoon

Allowances can be tools for teaching values and money management, and can build lifelong habits of budgeting and saving. Parents set the stage for this by being fair and consistent in following the plan. It helps when the children are part of the process and their input is acknowledged.

Keep the parameters simple and avoid attaching chores to the allowance, simply because it is cumbersome and doesn’t work. Assign children chores because they are part of the family and give them an allowance because they need to learn about money and should be free to make some choices.

Set up a plan for giving the allowance and then follow it. Periodically discuss how things are going and make appropriate adjustments. Allowances are learning tools, and with some effort, you can make maximize them. 

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Mary Kelly Blakeslee, Ph.D.Retired Psychologist

I am a recently retired Psychologist. I had a private practice since 1985, first in Springfield, then Summit New Jersey. My practice consisted of individual and couples therapy, with adolescents and adults, covering issues of depression and anxi...

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