“Do you pay your kids an allowance? How much? When did you start?”
It’s one of those topics that comes up every once in while with our clients, as well as with friends and family with kids around the same age. We have tried a few things (and as a financial planner, I’ve done a little research) and have learned a few lessons along the way.
Why Bother Paying Your Child an Allowance?
Sure, I always thought it was important to teach my children about financial responsibility. I am a financial planner, after all. But I’ll be honest, figuring out the logistics of an allowance seemed like an inconvenience and especially in the beginning, feel like more trouble than it is worth.
Additionally, I didn’t have much experience with it. My parents definitely taught me the value of working, and I pretty much worked as soon as I was able in my teenage years. But that money was basically spending money; I never saved much or even any of it. I wish I had built a habit of saving earlier in life and hope an allowance can help my kids in that area.
So the main reasons are to teach your kids about financial responsibility, create a habit of saving and basically help them build experience with money and prepare for eventual financial independence. Frankly, as financially comfortable people, we’re also trying to avoid raising spoiled brats. (Recommended Reading: The Opposite of Spoiled, by Ron Lieber).
But if you need more motivation, I can give you a selfish reason as well. It’s annoying to have a kid beg you to input your credit card on some sketchy site to purchase Minecraft Mods. Or worse, seeing recurring charges from some gaming website hit your credit card bill. If the kid has his own (limited) source of funds, he can only spend so much and doesn’t need to bug you. It’s a parenting win-win!
When Should You Start Paying Your Child an Allowance?
We didn’t even start thinking about paying an allowance until our oldest was in school. He didn’t really have much interest in buying things until then, to be honest.
I think somewhere between 6 and 8 is a good age to start paying an allowance, but you can start teaching kids about money much sooner than that. One way is to consciously make the cost of things a part of normal everyday conversation. It’s also good for building the skills of my little mathletes.
Here are some examples:
- At the grocery store. For little kids, just pointing out the labels on the shelf for things you buy is new information. “See, bananas cost 29 cents each but these honey crisp apples cost 1.29.” (those are the best apples though!)
- At home. “How much does that movie you want to watch cost? 99 at Amazon Prime. Did you check Netflix and HBO to see if we already have it?”
- At the gas station. “That sign says regular gas is 3.59 cents per gallon. Our car holds 12 gallons. How much will it cost to fill the car up with gas?”
All that being said, it is never too late to start. A teenager may be resistant to changing your current system (or lack thereof) but will get it faster and needs to develop money skills too!
What Is it For and How Much Should it Be?
Many have suggested a few guidelines which we have followed.
Don’t pay an allowance for specific chores. You don’t want to create a situation where your kid demands a dollar every time they unload the dishwasher. Our kids have a few responsibilities which I do not consider chores. These are along the lines of emptying the dishwasher, setting/clearing the dinner table, taking care of pets, and generally cleaning up after yourself. But I’m not tracking these very closely. If they miss a day, they still get their allowance.
Pay your child’s age, per week. Friday has been “pay day” for my son for years now, and every year he gets a “raise” on his birthday.
As my son (now 13) gets older, we have created opportunities to earn extra money. He is generally game to wash the car, shovel snow, or power wash a deck for extra money. It’s good to have minions!
Different Ways to Pay Your Child an Allowance
We started with a Google Sheet, dramatically titled “The Bank of Mom and Dad.” I literally just put the weeks in rows, and made columns for deposits, withdrawals, interest paid and final balance. This was obviously free and kind of cool to see the money grow but became a little unwieldy.
Many advise using physical cash, especially for younger kids. We also tried the “three jars” system of three containers labeled SPEND, SAVE and GIVE and divided the allowance up in there. This never really worked for us (where I am supposed to get all these $1 bills?), but lots of people love this system.
What has worked – and what we’ve stuck with for years now – is the GreenLight debit card. Your kid gets a physical debit card (a 10-year-old feels VERY cool strolling into a deli with this). The parent can automate deposits to the child’s account, boost the interest rate if desired to encourage saving, and view the child’s transactions. There is a cost of $4.99/month which seems extraneous on some level, but I’ve decided the convenience is worth it, and recommend it overall.
Conclusion and the Future
Paying our oldest an allowance has been a good thing. As his younger siblings are approaching the same age, it’s a good time for me to reflect on how it has benefited him (and us).
He puts money in the “savings” bucket because he likes earning interest. I wasn’t sure he’d even notice, but there you go.
He has a greater habit of looking to see how much things cost and dare I say it, thinking more long-term? Earlier this year, he wanted a new gaming computer. (Because his was too “laggy”). He didn’t have nearly enough in savings but we offered to match what he had so he could get the computer for his birthday. Well, he got motivated to do extra chores for pay (snow was shoveled! My car was washed!) He also did quite a bit of research (led by Dad) on what to buy, and what would be a good deal. I was actually quite impressed.
I can trust him with basic financial transactions. Now that he is a young teenager, his favorite activity is to meet up with his friends, ride bikes, eat lunch, walk around, and come home. I can give him $20 and know that he won’t just lose it. (He will spend it on candy, however).
Kids today seem a lot more interested in the stock market and trading, but our kid hasn’t expressed an interest yet. I don’t think it will be too far in the future, and I would much rather him learn (and make a few mistakes to learn from) under our watch than when he is out on his own. So perhaps that will be another blog post down the road!