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How Much Allowance Should Kids Receive?

During our Money Talks: Making it Say the Right ThingSM workshops for parents, a frequent question is on the subject of allowances. An allowance can be a powerful tool for teaching kids how to manage money. The ultimate goal of an allowance is to teach children how to handle money wisely.

With an allowance, a parent can introduce a child to money choices. As a family you decide what percentage should be allocated to each choice. Start the financial education process by introducing your child to the fact their allowance can be divided among four choices:

  1. Saving – Determine an amount for short and long-term goals.
  2. Spending– Discuss what your children are expected to pay for.
  3. Donating– Involve your child in the decision-making process by allowing them to identify a charity or cause to support.
  4. Investing– Encourage your child to invest by financing an entrepreneurial project such as a lemonade stand.

How much allowance should kids receive? Should there be conditions attached to the receipt of allowances? Research shows that allowances are typically based on age, performance, or need.

  • Allowance based on age is usually a certain amount per year of age of the child paid weekly. Note that allowance based on age may not work out for some kids. Consider that $5 may be a lot of money for many five-year-olds, whereas $10 a week for a 15-year-old may not be enough if they are expected to pay for school lunches, movies, snacks and other items.
  • Allowance based on performance often includes the completion of household chores or getting A’s in school. This type of allowance may work in some families but may not work in others. Paying for good grades is a controversial subject. Many child psychologists believe that getting good grades should be its own reward because it gives the child a sense of accomplishment. Parents need to realize that allowance based on performance gives the child the power to decide that they would rather not get their allowance than make their bed. Again, child psychologists suggest that if your kids misbehave, the discipline should fit the deed versus docking their allowance. For some kids, putting a price tag on chores encourages them to bargain on every chore you ask them to do. The goal of chores should be to help kids develop a sense of family responsibility and cooperation.
  • Allowance based on needs can be a great money management learning tool. Have your child (or if too young, the parent can do this) write down a list of items and/or services they are expected to pay for (for example, school lunches, candies, movies, CDs, etc.) for a month. Contact us for a worksheet that can help you out in this process.

Our suggestion is to first base your child’s allowance on many of the nonessential items (such as candy or movies) and a few essential items (such as school lunches). Once your child is proficient at handling that amount, you then can increase the allowance as you increase the expenses they are expected to cover.

When shopping with your child, it is crucial not to weaken and give them money for things they are supposed to pay for. The reason: it will undermine the discipline an allowance is supposed to make, which is making trade-offs and tolerating delayed gratification. Surprisingly, you may find that under the “need system” of allowance you will spend less than when your kids begged for money.

How often should allowance be paid? Experts on the subject suggest start weekly but by the time they enter high school, they should be able to manage on a monthly basis. What is the appropriate amount? What is relevant is not the amount that you pay but what you want to do with it as a money management tool. You might want to informally poll other families in your area to find out what the average allowance for kids is. But, having a view of the overall averages is a starting point. Here are the weekly average allowances by age from www.factmonster.com:

Age Average Allowance
4 $2.85
5 $3.15
6 $3.85
7 $4.10
8 $4.32
9 $5.52
10 $7.18
11 $7.92
12 $9.58
13 $9.52
14 $13.47
15 $15.57
16 $17.84
17 $30.66
18 $40.10

When should you start a child with an allowance? If your child understands numbers and can tell the difference between coins, then five or six years old is typically a good time to start. As your child gets older, you can increase the amount paid along with increased responsibilities. By the time they are a teenager, they can be in charge of buying their own clothes, birthday gifts for family and friends, or gas for the car.

Some helpful suggestions on allowances that we have found through our research:

  • Treat allowances as an educational tool, not as a disciplinary strategy.
  • Be consistent and accurate. How would you like it if your boss didn’t pay you the right amount and not on a regular basis? If you are paying additional amounts for an extra chore, it is a good idea to pay your child right away so that you are reinforcing the connection between work and money.
  • Set a rule as to when your child can ask for a raise. When they do ask for a raise tell them they must justify the reason for the increase in allowance.
  • Explain the difference between need and want. For example, our daughter needed a new pair of jeans, but wanted the expensive “Seven” brand of jeans. We told her the amount we felt was reasonable to pay for a pair of jeans. If she wanted the more expensive brand, she would have to pay the difference.
  • Loans and advances should be discouraged because they do not help develop a tolerance for delayed gratification. It also may give them the impression that credit is easy.
  • Matching savings can help reinforce the achievement of a goal. Consider how most adults respond well to an employer match of contributions to a 401(k) plan.
  • When giving young children an allowance, give it to them in denominations that encourage savings. (For example, if the amount is $5, give them five $1 bills and encourage them to set aside $1 for savings, charity, etc.)

Whatever system of allowance you decide on for your child, focus on what is important to you and your family’s values. Even if you decide to do nothing at least start talking to your kids about money. Take stock of how you and your family approach money matters. Articulate your values by creating an ongoing dialogue to identify how and why monies are spent. Learning is a lifelong process for both parents and children of all ages – whether they are 5 or 55. Knowledge is power and nothing is more important than educating your children about money.