How to set up your allowance for kids so that it acts like your child's money training wheels.
Allowance for kids can be a touchy subject.
First, there’s figuring out whether or not you should pay kids to do chores, if you should pay for grades, or if you should just give an allowance.
And if you DO decide to pay for chores, you then have to figure things out like:
- how much should you pay your child for chores (juggling their age, responsibilities, etc.)
- what kind of chore oversight will you complete and what's expected of each chore before your child can get paid
- what chores are age appropriate
- and so much more.
On top of this, there are all types of gurus telling you that only one way − THEIR way − is the best, like Dave Ramsey's Allowance system (which is purely chore-based), or Suze's rule about not rewarding good behavior with money, or insert some other guru's allowance rules.
It can get completely overwhelming to choose something that you, as a parent, want to get “right”.
Fortunately, I'm here to help guide you through each of the decisions you need to make so that you can pick the best allowance system for your child + your family in a way that doesn’t make you want to pull your hair out.
But first up? I want to clear up a huuuugggeeee misconception about any type of allowance.
Allowances for Kids are Not Money Lessons
You read that right, Mama Bear.
Just giving children an allowance alone − whether from earning it through chores, projects, or handing it over − is not a money lesson that will make your child any financially savvier than kids who never received an allowance at all.
And I'm not just saying that to grab your attention by scratching cross-grain.
There's real research to back it up.
The study where this information originally came from was by Professor Lewis Mandell, who looked through all of the allowance studies from the last 50 years and found a really crazy outcome:
He found that kids who received an allowance were actually LESS financially savvy than kids who did not.
EXCEPT − and this is a B.I.G. exception − when parents gave a child allowance + talked with their kids about managing their new money.
Now THOSE were the kids who moved ahead in money-savviness.
Kinda shocking research, right?
I mean, before pouring through a Library of Congress-sized room of research, I would've thought that kids who received an allowance would be about three rungs up on the ladder from kids who never got to touch the green stuff.
Pssst: in case you’re questioning the information, know that T. Rowe Price found something similarly convincing about the importance of money conversations on top of allowances in their 2014 Kids & Money Survey. According to their results, Teachable Money Moments are über important (the kind that get sparked by my free, fun Money Conversation Starters for kids.
Having said all that, an allowance can be one of the best ways to teach your kids about money. That is, along as you have an allowance system.
You Need More than an Allowance – You Need an Allowance System
The research is in. We both know an allowance alone is not going to cut it.
And I want you to knock teaching-your-child-about-money out of Minute Maid Park (any Houstonians here?)!
To do that, you need an entire system that ties your money goals for your child into its very design so that they can self-discover critical money lessons. It’s like creating your own money incubator!
Soooo…ready to not only get your allowance system together (I call it your Kid Money System), but to actually tie it around the money goals that you have for your child so that it naturally teaches them money management?
Should Kids Get an Allowance?
I had an interesting conversation with a Work at Home Mother of a 9-year old + twins under 2. I asked her about her kid money system (aka, if she gave her kid an allowance, did she use chores to pay commissions, or does her child otherwise have money of his own to spend).
She responded with something like, “I will give him money when I can answer the question, what does my 9-year old child need money FOR?”
I totally got what she was saying, and at the same time really wanted to address this one. So, here we go!
Have you ever wondered, “should kids get allowance…” or ANY money for that matter?
Before we can address what the heck a 9-year old, 8-year old, or fill-in-the-blank year-old needs money for, let's get off our chests what they definitely DON'T need money for.
They don’t need money for another box of Pokémon cards. They don’t need a dime for more candy. And they certainly don’t need money to spend on snackie-type foods at lunchtime instead of the awesome lunch you're probably making them, or at least used to, when you thought they might eat it.
Instead, here’s what your kids *actually* need money for:
- to make choices and face the consequences (both good and bad)
- to learn from their mistakes and successes
- to repeat this process until they've gained a good amount of money confidence
You see, all those things I just said they don’t need more money for? Those were judgment calls made by me, a 35-year old with a heck of a lot of experience with money + purchasing things + budgeting.
But your child? They have almost no experience with it. Especially if they don’t actually get to touch the stuff.
- They don’t know about trade-offs, that making a decision to buy one thing means they have less to buy something else.
- They don’t know the power of its value from doing something like watching it accumulate from one week to the next week, several weeks, or even month.
- They don’t know what it means to work 8 hours at a job just to pay for that pair of designer leggings they’ve got their eye on, nor do they have the wisdom yet to do the calculation and decide if it’s actually “worth” it.
By handling actual money and having some control (within a controlled environment — i.e. the confines of your allowance system) to spend it as they please, they’re going to get a taste of each of these things: trade-offs, understanding the value of money, decision-making in general, and budgeting.
Keep them money-less? And the stakes just get higher and higher the older they get to get their money decisions right the first time.
And, let's be honest, how many of us have gotten each of OUR money decisions right the first time?
What is the Average Allowance for Kids, and How Much Allowance Should You Give?
Now that you know why your child needs money, let's get another big topic off the table: how much to actually give them.
I’m going to give you the average allowance for kids, or the “going rate”, so that you have some guidelines to go by.
But FIRST, I want to tell you that when it comes to figuring out how much money to give your child for allowances:
You should keep your eyes on your own paper.
Many parents look to other parents to see how much they’re paying their kids. But here’s the thing: it's all relative.
The amount you pay your child has several variables involved to figure out, one of them being what money responsibilities you are now passing onto your child to pay for.
10-year-old Liam’s parents might be giving him $20/week in allowance but expect him to pay for his lunch bill out of this amount. And if you give your child $20/week from overhearing this from Liam's mother, but haven’t passed on the same money responsibility to your own child, then your child would be getting a lot more than Liam does to burn through, despite them each getting the same amount.
It’s best to get an idea of the range other parents are giving their kids, and then ultimately come to your own conclusion once you figure out the money responsibilities your own child will have to meet with the money.
Pssst: figure this all out with the free one-page allowance plan I created.
Alright, all that aside, it turns out that the average going rate for an allowance is $8.74/week.
This was found after polling 10,000 parents of kids aged 4-14, across the U.S.
Average allowance by age, from the 2017 RoosterMoney.com study:
4 years old: $3.97/week
5 years old: $4.89/week
6 years old: $5.81/week
7 years old: $7.30/week
8 years old: $7.66/week
9 years old: $8.20/week
10 years old: $9.00/week
11 years old: $10.10/week
12 years old: $10.96/week
13 years old: $12.10/week
14 years old: $13.34/week
When Should You Start Giving Your Child an Allowance?
This is backed up by T. Rowe Price's recommendation that, even though 50% of young adults say parents haven't talked to them about money until they were 13 or older, that you should really start discussing basic financial concepts with your child at around age 5.
Pssst: is your child over 5 or 6 years of age and you’re now wondering if you missed out? I’m not into scaremongering; you can definitely still teach your child what you’d like them to know, starting from any age. In fact, statistics show that the majority of parents who give an allowance start at around the age of 8.
But guess what? If they don’t actually get a consistent amount of money at that age via your Allowance System…then you’re missing out on a critical money stage.
Real-Life Example of an Allowance Tweak that Changed Her Son's Money Behavior
The first Friday of the month is a very intriguing one for 14-year old Spike. He gets paid $100, which represents his entire months’ allowance.
His mother, Myown, says,
“I put it in his bank account the first Friday of the month like a payday and he has a bank card. So he can go to the bank or use the card out like an adult because he's almost one.”
This once-a-month allowance system was going great for them. Except there was only one problem: it wasn’t getting across the money lesson his mother wanted to teach her son.
Money Behavior this Mama Bear Wanted to Change
Myown, Mama Warrior of The Polished VA, and mother to Spike (14 years old), Tom (7 years old), Jerry (5 years old), and Tike (4 years old), wanted her eldest son to start saving up for larger items.
In her mind, this meant saving money from one month to the next without spending it on something frivolous – a bit a stretch-goal when your teen is just starting to work out their delayed gratification muscle.
And Spike just wasn't getting there with their current allowance system.
With that $100, Myown expected Spike to pay for extras such as bowling + movies with his friends, and facial wash. But bridging that gap between paying for an $8.00 movie ticket + $4.50 hot dog all the way to paying for $55 new shoes is where she was having trouble.
Her money behavior she wanted to change: “I'm trying to teach our teen about saving his money instead of just spending it as soon as he gets some. For example he get $100/month for things to pay for such as his bowling, movies, and facial wash (items that he needs and then things that he often likes to do with his friends). Saving towards something big like (new shoes that are coming out or new laptop) instead of feeling like he has to spend the money on eating out or picking up something he doesn't need.”
The Tweak to Myown's Allowance System that Yielded Impressive Results
Bridging that money gap between one month to the next is actually a hard concept for many adults to get, let alone kids.
So instead of starting with that big-kahuna goal, I asked Myown to scale back on both her expectation as well as her allowance.
Solution: Divide her $100/month allowance into two, and give it twice per month, just like a bi-weekly paycheck.
Of course, savings in this sense will only be on a two-week time table, but it sounds like he needs to start on short-term savings goals before moving onto bigger ones.
It's what I like to call time releasing your money, and I've recommended it to adults for years. The good news? It can work for kids as well.
Spike’s Progress, Two Months Later
I reached out to Myown two months from our initial talk to see how things were going and if she had used my idea.
Myown said that she is using the solution, and
“…he's actually using his money less. I also let him keep an account of his own money so juggles it better. For example he saved his money so he could buy his brothers and us Christmas gifts from himself. He was so excited that he made the purchases with his own money.”
She took things a step further, and “…tried the item with finding a goal of something he wants to purchase and making that his screen shot. Then when he thinks of spending his money on frivolous items he sees that and changes his mind. Right now, his goal is man uggz.”
Spike has been offered a spot in his high school’s finance program as well, which has the nation’s only student-run stock room. So he’s stoked about that. He’s also decided to begin designing tshirts to sell. Since Myown owns her own business, she’s walking him the steps of how to set up his own shop online.
“Thank you so much. I want him to be able to handle his own finances when he leaves for school.”