Allowances…to give or not to give? And if so, how?

My husband and I went back and forth deciding whether or not to give our girls allowances. The main sticking point was that we did not want to pay our kids (or train them to expect payment) for cleaning up after themselves and contributing to the family. At the same time, how many of us work for free, you know? The other thing that delayed us was deciding on all the details (e.g., How much to give them? For what?). Eventually, with my oldest turning eight, it seemed time to take the plunge…

After some research and discussion, we decided that an allowance in our family would be a tool to teach our children about the value of money and money principles, and would not be tied to their regular chores, with a major caveat. We told the girls that cleaning up after themselves and doing their daily chores is considered the bare minimum and that their allowance is considered an “extra” privilege. So, if the minimum level of cooperation is not achieved in a given week, there would be no “extras” that week, including allowances (this threat seems to work as we have yet to hold back their allowances).

We explained that they were getting an allowance to help them learn about money (and to save us from being constantly asked for things. Ha.). In determining how much allowance to give the girls, we followed the rule of thumb most often cited in the articles I read, which is $1 corresponding to each year of the child’s age. In other words, our eight-year-old receives $8/weekly, and our five-year-old receives $5/weekly.

At first, I balked at these figures, as it seemed like way too much money to give young kids each week. However, most of the articles I read made the point that in order to be an effective learning tool, an allowance has to be worth something. The common messages about allowances that I found in my research include:

• Start giving an allowance as soon as your child is old enough to grasp basic ideas about money (e.g., ~5 years old).
• Choose an amount that works for your family budget, but make it as high as possible (within reason), and make the allowance correspond to your child’s age.

Obviously, having enough extra money in the family budget to even consider an allowance is a privilege. So, while most articles used the $1 per year of age rule of thumb, any amount would work, whether 25 cents per year of age or 50 cents per year of age, et cetera. Decide what makes sense for your family and know that most kids (some sources say as high as 70%) get some kind of an allowance.

Because it is important to us that the girls learn about the value of money, as well as basic principles of saving and philanthropy, upon receiving their weekly allowances, they divide the money into three equal parts: spending, saving, and donating (we use labeled mason jars for storage). The girls are allowed to use their spending money on anything they choose (within reason). We simply hope that they learn from their mistakes if (probably when) they waste all their spending money on candy. My daughter did this once and then she was over the thrill.

We have more restrictions on the saving money. The girls decide what they are saving for and write down the item and the total cost on a piece of paper that they keep in their save jar. This helps them keep their goal in mind as they work towards it.

We have been doing our allowance experiment for about six weeks now and I think it is going quite well. The girls saved up for their first “big” purchase and were able to spend their saving money for the first time a few days ago. They were both exceptionally proud and excited that they were going to be able to buy themselves a toy with money they had saved.

In terms of the donation money, at the end of each month, the girls decide where they want to donate the money from their donate jar that month. The first month, my oldest daughter donated the money to her elementary school and she wants to donate to the homeless next month. My youngest daughter has decided to donate to an animal shelter. 

Overall, this beginning financial literacy exercise has prompted a lot of good questions and interesting family discussions. I look forward to continuing this new family practice.

For more information and sources, read here (the author’s book looks like a great resource as well), here, here, and here (this article includes average pay by parents for specific tasks such as doing the laundry).

Happy spending, saving, and donating!

Esha/Enriched Family