Kids & Money: How Much Should You Pay in Allowance?

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Kids AllowanceWhen it comes to teaching your children how to responsibly handle money, an allowance can be a good tool. An allowance, whether it’s tied to chores or not, can provide your children with their own money to mange, and provide you with the chance to offer hands-on, practical experience related to finances.

However, deciding to offer your kids an allowance is only the beginning. You also have to figure out how much is appropriate for your children to receive. It’s no good if your child’s allowance doesn’t provide him or her with enough to effectively manage their decisions, or realistically save up for some items.

Deciding How Much to Pay in Allowance

As you decide how much to pay your child in allowance, there are three main factors to consider:

  1. Age: First of all, consider how old your child is. An eight year old has very different spending habits and requirements than a 15 year old. Take that into account. The things that a young child has access to, and can buy, are usually less expensive. Additionally, it may not be necessary for your pre-teen child to set aside as much for long term savings, while you will want to provide a bigger allowance to an older child, and ask that a greater amount go toward college savings or some other long term event. Another age related consideration is whether or not your child has a job. If your teen is old enough for an after school job, it might be time to wean him or her off the allowance.
  2. What your child is expected to pay for: Another consideration is what you expect your child to pay for out of his or her allowance. If the allowance is just for learning to save and make wise spending decisions, it doesn’t need to be as large as if you expect your child to help pay for extracurricular activities or buy all of his or her own clothes. Be clear about what you expect your child to pay for ahead of time so that he or she knows exactly how to allocate his or her funds.
  3. Your family’s circumstances: You also need to consider your family’s circumstances. While it would be nice if you could afford to give your child a very generous allowance, you might not be a in a financial position to do so. Carefully examine your finances and use that as one of the factors in deciding how much to give your kids in terms of allowance. Let your children know the reasons behind the smaller allowance, and make sure that they see you practicing frugality, and making sacrifices. That way, it’s more of a family effort.

Adjusting Your Child’s Allowance

An allowance doesn’t need to be set in stone. Periodically speak with your children about their financial goals, and their allowances. You can add more to the allowance as your kids get older, or reduce the allowance as they make more of their own money. Be clear about why you are paying allowance, and make it clear that an allowance can be adjusted over time.

(Photo: Memory_Freak)

{ 6 comments, please add your thoughts now! }

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6 Responses to “Kids & Money: How Much Should You Pay in Allowance?”

  1. JP Adams says:

    Good article – thanks. Its also helpful to think about the type of lessons you would like to teach your children through an allowance. Here are a few to consider:

    – Savings & Compound Interest – Put their money in a jar and have it grow at 10% a day for 30 days. Your child’s money will double, triple, quadruple…

    – Contribute to Charity – Allocate 25% to 50% of their allowance to Charity. Ask them to choose the charity (Donorchoose is a good place to start)

    – Set Goals – Set small and large financial goals that matter to your kids.

  2. echidnina says:

    I don’t remember at what point in time my parents started giving me allowance, but it was $5/week and I don’t think it ever went up. It was just pocket money for CDs or luxury things like that. By the time I had any actual expenses of my own, I had gotten a part-time job. The rate was enough for me to buy things but low enough to make me have to choose which things I wanted enough to save for, and I think getting a ‘raise’ might have been counterproductive to that.

  3. Shirley says:

    When I was 12 my parents started giving me a $10 monthly ‘clothing allowance’. This was in the early 1950s when that amount went a lot further than it does now. I bought a small portable sewing machine (a Singer that I still use 50+ years later) and learned to sew. Christmas and birthday gifts were usually coats and underclothes.

    The result was that I learned to be frugal, save for what I wanted, and learned a skill that would benefit me for as long as I can see to thread a needle. I will always be grateful for that forethought on their part.

  4. I’d say don’t give them any allowance for free. Make them earn it by doing some chores around the house or yard.

    • Sun says:

      Yes chores. Some things you do are not negotiable — you just want to help the family. You can do extra stuff like yard work, bathroom cleaning, vacuuming, etc that is a commission.

  5. dave says:

    You can pay an allowance of $0 per month if protection is used

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