Giving an allowance is one of the most basic child-raising concepts that also happens to feel the most complicated. How much should you give? How do you teach financial responsibility from a young age? How do you get kids excited to save money (as opposed to, you know, ordering $400 worth of Barbies off of Amazon while you’re not paying attention)? These are tough questions, especially for those among us who don’t find finance to be all that interesting (or instead, find it a little intimidating).
It’s something that parents universally deal with in very different ways: In 2008, Barack Obama said his then-pre-teen daughters earned $1 a week in allowance. Mariah Carey’s kids do chores to earn allowance, as do Jimmy Kimmel’s; even the kids of Warren Buffet, one of the richest men in the world, had to earn their spending money by working around the house. And children are never too young to learn how important it is to give back from your earnings; just look at these kids, who saved their allowance to buy a service dog and make clothes for kids in need.
Pros know that teaching kids easy financial concepts from a young age can help set them up for success in the future, and that the key is making it accessible and even a little fun. You don’t have to spend a fortune (or be the expert at managing your own budget) to make an impact; you just have to get started. We spoke to Liz Frasier, a financial planner and the author of Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance (and They’re Never too Young), to help navigate the early years of allowance and beyond.
When should I give my kids an allowance?
“The earlier the better,” Frazier says. “There’s not so much a specific age that kids should start getting an allowance; it’s more about when they start noticing money, notice that you’re paying for something and start asking questions. But as a guideline, kindergarten is a pretty good time to start.”
She also recommends that for young children, giving cash is key to make the concept of money more concrete and less abstract: “Kids learn best when they’re interacting with something. Digital money is just too hypothetical at that age. They’re still learning math skills and things like that, so it’s really good to have it as cash.”
How much allowance should I give my kids?
In her own personal experience, Frazier gave her daughter $5 a week starting at age 5, and explained that a portion would go into a “spend” jar for incidentals and extras, a “save” jar for longer-term purchases and a “share” jar for donations, then allowed her daughter to determine what portion would go to which jar. (These jars can be specifically designated objects, like this one, containers or envelopes you decorate yourselves or a hybrid approach that involves setting up a savings account at the bank.)
“It doesn’t matter as much [what amount] you start with. It’s just an easy guideline and it makes sense to kids: You get $5 when you’re five every week, six and $6. As they get older, the things that they’re buying are more expensive, so [an increase] gives them a little bit more responsibility with the money,” Frazier says. “For a family who doesn’t have the money for that kind of allowance, you could start at half their age: ‘You’re six years old, that means you get $3 a week.’ But I think it’s just important to up it a little bit every year so that they’re continuing to grow and practice.”
Before implementing a system like Frazier’s three jars, talk with your child about goals and timelines for each one. The “spend” jar might be money that can be spent within the month, on something attainable and fun: Tickets at a fair, ice cream after dance class, LOL Surprise dolls. The “save” jar should be for a bigger-ticket item (like a scooter) that you set benchmarks against so they can reach the goal within the prescribed amount of time. And the “share” jar can go, at an interval you see fit, towards a cause that your child is excited about.
Should my child have to work to earn an allowance?
Every family should do what makes sense for them, but Frazier recommends giving a set amount each week not contingent on chores, for two reasons: The first is that “you want them to have money so that they can learn finance from it” in a fun, non-punitive way. The second is that “you want your child to unload the dishwasher, make their bed, clean up after themselves because they’re part of the family, not because they’re getting paid,” Frazier says. “Also, if you’re basing allowance off chores, your child can say ‘Well, I don’t need money this week, so I’m not going to clean my room’.”
However, she suggests having a list of tasks above and beyond your baseline expectations (such as cleaning the yard, organizing photo albums, helping cook) with dollar values attached, in order to let them work to earn cash on top of their allowance if they’re trying to reach a financial goal faster.
Can I use allowance as a reward or punishment?
Frazier knows that some parents give financial incentives (i.e. paying for good grades) or punishments (taking away allowance when a kid is grounded), but she doesn’t recommend it. “The big thing with allowance is you want to make sure that it’s always positive, consistent and dependable,” Frazier advises. “If they get a bad grade and they don’t get money, that feels like a punishment. One of the biggest challenges in teaching kids finance is teaching them how to have a healthy behavior around finance. There are so many conflicting messages around money out there, and parents need to manage them.”
If I think finance is boring, how do I get my young kids interested?
Frazier says she helped her daughter reach her “save” goal by celebrating certain milestones as she worked towards it. “Once she reached $10, I matched her $5. When she reached $20, I gave her an ice cream sundae party just with our family. You want to make it something that’s realistic and tangible when they’re young so they’re excited and engaged in the process.”
She also recommends discussing finance in a more low-key way daily, whether it’s taking money out of the ATM for a specific expense or deciding not to pay for a latte because it’s not in budget. “No matter what your understanding of finances, every day you are budgeting. Every day you’re making spending decisions. There are opportunities every day to talk about money,” Frazier says. “If you’re going to buy a bagel or coffee, try paying in cash so your kids can see, Oh, it does cost actual money. This is money that was in my bank and now it’s not. So kids can understand the value.”
Finally, for kids who seem resistant to the idea of sharing or saving their cash, “make sure that they know this is all still their money,” Frazier says. “For saving, it’s still their money: They’re going to spend it later. For sharing, you want to say, ‘This is your money to share. So let’s talk about things that you really care about.’ Bring a dog lover to visit the local shelter and talk about the things they need. Kids inherently are so giving and kind and they want to do good things.”
How should I give my teenager an allowance?
Once kids move into adolescence, Frazier says, it makes more sense to give them their allowance monthly, while still being clear that you still expect them to “spend, save and share” and occasionally checking in on their progress. Frazier recommends setting expectations (“I expect you to use your budget towards your new school wardrobe,”) and if they don’t meet them, they experience the consequences. “If they blow it all in the beginning of the month and they can’t buy any new clothes for the rest of the month, well, that was a mistake that they probably won’t make again,” she says.
Once your child seems ready to move on from cash, “Go to the bank together and have the banker explain the process, just to make it a bit more tangible,” Frazier recommends. “Then an app or online banking is the next step. A debit card is great for teens because realistically, much of the world is cashless.” Though debit cards are a safe way for kids to spend, it’s still important to maintain an ongoing dialogue about money (reminding them, for instance, “If you buy this, then you won’t have money for that”) as they enter a particularly impulsive point in their development.
What should I do if my kid receives a large cash gift?
The three jar system still applies. Frazier recommends a script like, “This is a lot of money, so I want you to make sure that you’re putting some of this in your save jar, some of this in your share jar … I think that maybe a good rule of thumb would be 10% into the share and the save, but what do you think?”
“No matter how much they get, as long as they’re putting some in the save and some into share, you’re still teaching them that every time you get money you put some away, even if they don’t totally get it when they’re younger, which they won’t,” Frazier says. “You’re developing that habit. So that first paycheck they get, it’s just automatic. Oh yeah, I put some towards save. And oh yeah, I do need to donate a little bit of this. Just building that habit and that’s what we care most about.”
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