Your Child's Allowance: You're Giving Them Too Little Too Late

Most financial experts agree that children should be given an allowance, as it teaches money management skills very effectively…but how much should be given? And when should you start? Bankrate says:

The problem is that most parents resist giving children an allowance and, if they do, they usually give the children too little. If the allowance isn’t large enough for children to experiment with — to make mistakes with — it won’t have the learning effect you’d like it to have.

As soon as your child begins to express a sincere interest in material wants (as in, “I want that!”), it’s time for an allowance. Depending upon the child, that’s probably around the ages of 3 to 5.

The first mistake most parents make is starting too late. The majority of parents wait until their children are tweens (9 to 12 years old) and they miss out on the opportunity to discuss money with young children who are more apt to listen to, and take, their parent’s advice.

Bankrate suggests that you determine how large an allowance to give by the expenses the child is expected to pay for (lunches, movie tickets, school supplies, whatever.) That way, if the child doesn’t budget well enough, he or she will not have enough money left over for the weekend. If the sum is too small or too large, the lesson won’t be there. Ahh, learning. —MEGHANN MARCO

All About Your Child’s Allowance [Bankrate]

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  1. thrillhouse says:

    Most financial experts are apparently raising brats. The first mistake here is giving them an allowance. What does that teach? That for no reason, people will give you money on a regular basis? Put your child on commission, not allowance. Give them age appropriate chores around the house and an appropriate commision for each task. Teach your children to e a r n money by working, instead of walking around with their hand out.

    Then teach them to give, save and spend with what they have.

  2. B says:

    I knew my allowance wasn’t enough. Where was this article 25 years ago?

  3. I somewhat agree with thrillhouse. My parents gave me an allowance based on both chores, and what I could save them.

    Both of my parents were busy professionals, so Mom told me to look at the grocery flyers, cut coupons for the things we need. We had a monthly budget for groceries and whatever they didn’t spend was mine. Some months I didn’t get anything (budget busters), some months I got neigh on 100 dollars. It served a lot of purposes. It was a home economics lesson in absentia (what do we need to cook, comparison shopping, etc.). It trained me to read the newspaper, and made me feel of value to the household. I still blame it for my penny-pinching ways in adulthood.

  4. Paul D says:

    I got an allowance, but it was loosely based on chores.

    If my mom had to ask me more than once to take out the trash or empty the dishwasher, I got docked.

    If I failed to perform the task entirely, I lost the whole week.

    Etc.

    Then, when I was 18 I got a credit card and all of that went out the window…

  5. acambras says:

    I like Electoral College’s mom’s idea. Teach kids about the ramifications of everyday “real world” decisions early.

  6. RulesLawyer says:

    A tween’s allowance should be used to pay for their lunch at school? I don’t think so. I’m pretty sure my daughter would decide to go without lunch and pocket the money instead. Why advocate bad nutrition.

    I do agree with not linking allowance with chores. A stay-at-home spouse doesn’t get paid for doing chores; she/he shares in the income because they’re part of the family. Chores are expected from all family members as part of contributing to the family, not as an exchange of labor for money.

    I’ve found it very effective, however, to negatively offset my daughter’s allowance against waste. If we go to a fast food place, she orders a Sprite, and then drinks two sips and throws it away, she’s getting dinged the $1.25 that she just wasted.

    Another good policy (IMHO): we subsidize 50% of the cost of any books, whether it’s a novel, a magazine, a puzzle book, whatever.

    Giving her a clothing allowance, though… that’s an idea I hadn’t thought about. Maybe I’ll try that next fall.

  7. formergr says:

    Ben-

    Allowance is spelled wrong in this item’s headline (as allowEnce).

    I had an allowance and it worked really well. Our parents didn’t randomly just buy us toys, candy, or clothes (beyond the basics) that we asked for unless it was a birthday or Christmas. So if I wanted the My Little Pony or Cabbage Patch Kid (and later the Guess jeans), I had to save up. The Cabbage Patch Kid took a looooong time, but was worth it in the end!

  8. formergr says:

    Ack hit submit too fast: what my point was is that the system I summarized above taught me to save up for things and only buy it once I could afford it. As a result I’ve never carried a balance on a credit card, or paid for a car using a loan.

  9. etinterrapax says:

    I’m still trying to figure out what to do with our kids. To my husband, money was invisibly available, like air, but he isn’t a spendthrift. I had an allowance and parents who were far from wealthy or indulgent, and I still have to consciously remind myself not to spend money in a quest for happiness, and hate feeling deprived more than almost anything. Some of it comes from parents and how they use money, not just the dollar amount that the kid gets and what he or she spends it on. I hope I can teach our kids to save more. I’m very, very bad at that.

  10. acceptablerisk says:

    I’m the same way. I didn’t get an allowance and I didn’t get gifts without occassion. I had to save the money I got in birthday and Christmas cards and find odd jobs around the neighborhood in order to buy what I wanted as a kid. I never got a thing unless I had the cash in my hand. As a result, I hate owing people money. I’ve got a credit card I never use and I’ve never taken a loan from any kind of financial institution.

    It’ll probably come around to bite me in the ass since I don’t know how to deal with that kind of thing and I’ll be boned when/if I ever get around to shopping for home loans since I’ve never developed any kind of credit.

    Still, I think I’d rather have a good basis of spending responsibility rather than good credit. It’s a lot easier to improve your credit than to change your spending habits.

  11. thrillhouse says:

    RulesLawyer -

    Good point, but… A stay-at-home spouse is on commission, they just don’t realize it. They get to share in the family income, because they are at home doing the dishes and the laundry and raising the kiddos. Its just like any other job – don’t show up and there will be issues.

    You can also look at it this way: A stay-at-home spouse is being paid effectivly by not spending the money it would take to replace that person. Look at what it would cost to hire someone to cook, and clean, and take care of the kids, ect… You are saving money not spending money on it. If your spouse stops cleaning the house, then you now have to hire that service out.

    An allowance says that you get paid because you breath air. We’re all on ‘commission’ – work = get paid, don’t work = don’t get paid. try not showing up at work for a while – you won’t get paid.

    The commission system works well with the kids because its all spelled out for them: task1, everyday = $1, task2, once a week = $2. Work, get paid :: don’t work, don’t get paid. Don’t work for too long and we’ve got issues. Its just a lot easier to teach when its structured.

    Of course, there are things that are expected of you as a member of the family, that you don’t get paid for. This is about teachable moments, with clear goals and consequences.

  12. Me? I just started working at 12. As a busboy. No lie.

  13. Keter says:

    A stay-at-home spouse doesn’t get paid for doing chores; she/he shares in the income because they’re part of the family. Chores are expected from all family members as part of contributing to the family, not as an exchange of labor for money.

    Yikes. By that definition, all SAHMs are leeches. Hand me the bon-bons and turn on the soaps. Nobody else around here pick up after themselves, so why should I do it? (Doesn’t this sound like a “Married with Children” episode?)

    I think another aspect of allowances is that it should be proportional to the family income and/or the child’s expected income during young adulthood. A child who is going to have to be ultra-frugal to make it in life is not going to be well-served by an indulgent allowance that does not teach budgeting and tightwad spending skills. A child who will be managing an inheritance or investment fund at age 18, however, had better be given instruction in self-managing lifestyle/spending balance and sound investment strategies.

    The way you handle money with your child can set a relationship pattern for life, and can even propagate forward across generations because grandparents and even great-grandparents also teach (or undermine) the money lessons your children learn. Mistakes made by any living generation can really wreak havoc in a family.

  14. Keter says:

    …wow, my edit job on that last comment sucked. Sorry. I think y’all can figure it out. :#)

  15. You can also look at it this way: A stay-at-home spouse is being paid effectivly by not spending the money it would take to replace that person.

    I have to disagree. I may cook my own dinner instead of going out but I’m not “paying” myself the difference. I’m just not spending the money. Besides, mostly people can’t afford a maid in the first place. How can you say the stay-at-home spouse gets paid if the money isn’t there?

    It reminds me of a joke by Rita Rudner about how she budgets. Gave an example of how she spent $50 dollars more on a dress than she should have but spent $100 less than she was willing to spend on luggage. “Between the dress and the luggage I made $50.”

  16. crayonshinobi says:

    I have to agree with Thrillhouse as well. It’s an excellent point.

    I did receive a paltry allowance of $2/week all through grammar school and middle school(raised to $3 at some point). If I wanted anything that cost more, I was shoveling driveways, mowing lawns, vacuuming and cleaning bathrooms.

    Then, in high school, I got to start working. I’m pretty sure that’s when my youthful spirit was crushed like cupcake.

  17. “That for no reason, people will give you money on a regular basis? Put your child on commission, not allowance. Give them age appropriate chores around the house and an appropriate commision for each task.”

    The flip side to this, which mostly agrees with RulesLawyer, is that paying children for chores sometimes backfires and undermines a work ethic. (I think it depends a lot on the values of the family and the specific culture.) And any kid with half a brain quickly figures out they don’t need money badly enough to scrub the toilet.

    My mother always said what RulesLawyer said — you do chores because you are part of a family, and everyone in the family works together to the make the family work. You do not get PAID for being in the family. You do not get PAID for performing your functions as a member of the family. You do this because you are morally obligated to do it, not because you’re getting money for it. She strongly felt that paying for chores sent a message that participation in a family was optional and required monetary coercion.

    While I see the point, particularly in an economics discussion, of putting monetary value on a stay-at-home parent’s “work,” I feel like it’s kind of belittling in a discussion about family. Kant defined marriage as “a contract for exclusive access to another person’s genitalia.” Which, okay, it is, but … it really reduces a complex emotional and practical partnership to something very banal. There IS a monetary value to a stay-at-home spouse, but that’s a decision most* families make because of their values, not because of the money. (Like a Mastercard commercial: Stay-at-home parent? Priceless.) I think that’s part of why paying kids for chores can send a really wrong message. My mother did not stay at home because of the economics (which waxed and waned during her time at home anyway). My mother stayed at home because she and my father had strong beliefs on how to be and raise a family way that strengthened everyone involved and aligned with their moral values. I think there is a good chance she would slap you if you tried to attach a monetary value to what she did. :)

    *I say “most” and reading back this is elitist. Families that can AFFORD to make this decision do so because of their values. Families that need two working adults to survive don’t have this luxury.

    I think a lot of people are missing the most obvious thing to tell children — that you’re getting an allowance to learn how to budget and to manage money. That IS the purpose of it. You’re not truly paying the child for doing chores (even if you attach the money to that); you’re not handing the child money to indulge him or her (even if doing it makes you and the child happy); you’re trying to teach money management and accustom the child to dealing with money. Why not simply tell the child that?

    Kids aren’t dumb.

  18. Frank Grimes says:

    Another tactic I heard from a financial planner was a proposal he made to his seven year old son, when he figured he was old enough to understand the concept of savings. He would give his son an allowance of $7 per week. In addition he will put into a savings account another $2 per week. OR he could have $5 p/week and dad would then put $5 into a savings account per week. Its not like the kid will be able to retire at 25 but you can learn the value of savings and paying yourself first (his son took the $5 with a $5 match after quite a bit of persuading). My wife likes the ideas as well and wants to incorporate a third option, what do you want to donate each week. It doesn’t have to be much, but something.

  19. Metschick says:

    Then, in high school, I got to start working. I’m pretty sure that’s when my youthful spirit was crushed like cupcake.

    Heh, I started working in high school, but my youthful spirit wasn’t crushed like a cupcake till my first “real” job, my first job post graduation from law school. Ah, I tried to hold onto it, but The Firm wasn’t havin’ it.

    I never got an allowance growing up. The idea of giving us money was foreign to my parents. They gave us money for lunch, and any necessities, and took us clothes shopping when necessary. And they bought us treats (like books and toys) when they could, but it def. wasn’t often.

    And my brother, my sister, and I had chores assigned us as soon as my parents were sure we could do these things.

    Basically I didn’t get whatever I wanted till I had a job and could subsidize all my fun, and by then I realized how hard it was to make a buck – so I was sure to carefully spend the paychecks I received. Because of that I’m apalled when I see my 8 year old nephew (through marriage) with a $250 PSP, and $80 iPod shuffle. My parents would have scoffed at buying us such expensive toys, especially at such a young age.

    Okay, I’ve rambled long enough.

  20. juri squared says:

    Once I hit high school in the mid-90s, my parents started giving me $20/week. The deal was that I could spend it on lunch at school, or I could make my lunch at home and then have the extra money to spend on whatever. It was moderately successful – I’d say I paid for lunch around half the time.

  21. RulesLawyer says:

    [A]ny kid with half a brain quickly figures out they don’t need money badly enough to scrub the toilet.

    My point exactly. If you pay a kid for doing their chores, then any smart kid will be asking for a lot more allowance to do the same work in the weeks after they recieve birthday money from an uncle or Christmas money from grandma. Simple economics, really.

    “Johnny! Why haven’t you cleaned the kitchen yet?”

    “Keep the $2, pa. I’m taking the week off.”

    That wouldn’t fly in my house.

  22. chickymama says:

    My son is only 5 and he gets my spare change and puts it in his piggybank to save up for a toy. It is also a thank you for helping around the house since there is only so little that he can do that doesn’t involve a chemical. He is pretty smart though. He didn’t want to clean his room one day and decided that he would pay me out of his piggybank so I can do it for him. Needless to say it did not work out in his favor.

  23. There is some great advice here in the comments. All of the information discussed here is very valuable to anybody. Kids or no kids.

  24. Anonymously says:

    Yeah, I worked as a busboy at bingo started at 12. I could make $15-$20 a week, which was pretty good money for a few hours of work.

  25. karmaghost says:

    Is that a Wegmans in the picture there? They have their bulk foods section set up like that and most stores have that bare, reddish brown ceiling.

  26. thrillhouse says:

    How can you say the stay-at-home spouse gets paid if the money isn’t there?

    Actually, what I said was, “A stay-at-home spouse is being paid effectively by not spending the money it would take to replace that person.”

    By not sending the kids to daycare, you now have the opportunity to do something else with that money – whether it be paying the mortgage or going out on a date or putting it in savings. Certainly the stay-at-home spouse is not drawing a paycheck in the traditional sense, but they do bring value to the household. That is unless you have a Peg Bundy on the couch at home. Would you be so inclined to share the family income with old Peg and support her bon-bon habit? Or would you be having the whole “this is how this stay-at-home spouse thing works” talk. We’re all on commission. We just don’t all realize it.

    Would you not take out life insurance on a stay-at-home spouse? I assure you it will cost you money to replace what they do.