Allowances can be a great way for kids to develop good money management skills. An allowance can teach a child to carefully prioritize wants, to consider how much things cost, and to appreciate things that they purchase with their own money. These are important stepping stones toward a bright financial future.
A good age to start considering an allowance is about five. My kids were ready at different ages, so I encourage you to consider their maturity level. Does your child understand the concept of giving money and receiving something for it? Does she know the different values of coins and bills?
Some experts say to align the amount with your child’s age, for example, $5 for a 5-year old. However, it’s important to make your child’s allowance commensurate with how you expect them to use their money. Do you expect that your child will pay for their round of mini-golf? Or simply a candy bar after mini-golf? That’s up to you.
Make your expectations clear.
Clarity is important. Your child should understand their allowance amount and what they will have to pay for themselves. Perhaps you’ll pay for jeans, but if they want name brand jeans, that’s up to them. Or, maybe you’ll pay for all clothes, but they pay for activities with their friends.
Experts caution against paying your child for household chores. A child should contribute to household chores because they are part of the household. However, if you’d like to pay them for going above and beyond, that is an option. For example, a longer walk for the dog or cleaning up the garage.
Pay your allowance on the same day each week and set an expectation for making the money last. If you let your child borrow into next week’s allowance, they may not grasp the concept of making the money last.
For older children, however, this could be an excellent opportunity to engage your child in the concept of borrowing money. Let them know that they have to pay for that privilege, just like adults pay interest when we borrow money.
Kids grow fast and you may consider adjustments, “raises” or changes in your agreement. Continue to assess your allowance system every six months and talk over your arrangement with your child. You can review how he’s been spending and saving his dollars and discuss possible increases. This is the perfect opportunity to impart some of your own values and financial wisdom.
You may also be interested in my article “Summer Jobs For Kids” where I talk about a good structure to teach kids about saving, spending, donating and paying yourself first.
Most importantly, don’t forget to pat yourself on the back for your efforts! Your child’s good financial habits can last a lifetime.