Ever wondered how much allowance should I give my child? Why $1/Year might not work, and how to calculate your personal number.
“One dollar for every year your child’s been alive.”
If you google “how much allowance should I give my child?”, this is the answer that is going to come up over and over and over again.
While it gives some general guidance, the fact is: it misses the mark.
It’s just too simplistic.
Let me show you why, plus how to calculate the amount of allowance for kids that will make sense in your own household.
What is an Appropriate Allowance by Age? Not Necessarily $1/Year
First up, let’s talk about exactly why the $1/year allowance advice misses the mark.
If you use this estimate, you could get by okay. I mean, it’s possible that $8 is the perfect amount for your 8-year-old.
But if you don’t sit down to calculate it in the way I’m about to show you?
Then your child might be missing some key money management lessons they would self-discover otherwise.
An appropriate allowance by age doesn’t just take age into consideration.
Calculating an appropriate allowance amount needs to also include:
- the cost of the money responsibilities you’ll be passing onto your child
- a look at the spending power it will give them and whether or not that will accomplish your money lesson goals
These two things are not accounted for when you just give $1/year to your child.
Why the $1/Year misses the mark:
1. Because Money Doesn’t Come Without Responsibilities
What person do you know of gets money without any responsibilities that they need to pay for with it?
The $1/year advice fails to:
- Give you guidance on how to pass on a money responsibility with your child’s new allowance
- Give your child enough money to actually pay for a money responsibility (in most cases)
2. Doesn’t Consider Spending Power It Gives Your Child
Giving your child $1 for each year of their age doesn’t take into account what their spending power is.
In other words:
What does the amount of money getting into your child's hands (through an allowance, through chore commissions, through their job, etc.) allow them to do?
The reason why this question is SO IMPORTANT to ask yourself + work through is because spending power is everything.
If you give a child too much spending power, then they might just skip right over learning these really important money lessons:
- Make choices with their money (because they end up being able to afford everything they currently want)
- Prioritize spending needs vs. wants
If you give your child too little spending power, they're more apt to:
- Stop believing they can ever afford anything even semi-big, so they piddle away more of their money on impulse purchases
- Get discouraged early on with a savings goal, so they are less likely to create another one, and another one (practice is where it's at with managing money and just about anything else in life)
Alright – now that we’ve covered why the $1/year doesn’t make the most sense, just how are you supposed to calculate how much money to give your child?
How Do I Calculate my Child’s Allowance?
There are four things to take into consideration when calculating your child’s allowance amount.
- Their age
- The money responsibilities they’ll need to pay for
- Their outside earnings
- The spending power their allowance amount will give them
See how their age is just one part of this equation?
I mean, it’s important to make sure you don’t give too much money to a young child, or too little money for an older child. But looking at their age is just one thing to consider.
Grab a sheet of paper, and let me help you work through these four things to come up with a number for your allowance.
Step #1: What’s their Age
Write down how old your child is, and how much money the $1/year rule would give them.
So, if your child is 12, they would get $12 under that system. If they’re 5? Then they get $5.
Step #2: Figure Out the Money Responsibilities You Want to Pass On
Next, you need to figure out what money responsibilities your child will have.
Money responsibilities are the purchases and spending occasions that your child will have to pay for from their own money.
These will change as your child ages – moving more from want-based responsibilities to need-based – and really depend on what you and your partner think makes sense.
Some money responsibility examples include:
- Weekend movie tickets with friends
- After school vending machine snacks
- School dance tickets
- Toys in-between holidays and birthdays
- Extra clothes
- School clothes
You’ll need to calculate what you would normally spend for each money responsibility you’d like to pass on, and include that in the amount of money you give to your child.
You can either include the full amount, or a partial amount, depending on how much of the responsibility for paying for something you’d like to pass on.
Step #3: Their Outside Earnings
You’re looking at the total amount of money coming into your child’s hands, not just the allowance you’ll be giving them.
SO, you need to consider how much money they earn from outside sources, on a weekly basis.
Step #4: Allowance Spending Power
Next, think about the things that your child buys on a routine basis. Like, Pokémon cards, candy at the convenience store, Starbucks drinks, etc.
Choose three or so, and add up how much that costs in one week.
Look at the amount of allowance you’re either giving your child now, or the one you’ve estimated to give them (from the calculations above), and ask yourself how the two amounts compare.
How many of the things that your child likes to buy would they be able to afford – after spending on the money responsibilities you expect them to pay for – with that allowance amount? Is it too many? Is it not enough?
This will help you start to estimate a good allowance amount for a child.
Step #5: Putting it All Together – with Examples
All of these steps can be a lot to think through – which is likely why so many people stick to the simplistic $1/year advice.
I’d like to help illustrate how this works by giving you an example.
Sarah, age 10, currently gets $10/week in allowance. Her mother isn’t entirely happy with how it’s working out, though, and has started questioning if that’s the right amount. Sarah never seems to save any money from allowance pay cycle to the next, and her mother is starting to get annoyed with how frivolously and quickly she spends it. She doesn’t think Sarah is learning anything about money management.
Sarah likes to spend her allowance money on Starbucks Vanilla-Bean Frappuccinos, or on candy bars at the checkout in the grocery store (“it’s MY money, Mom – I can spend it on what I want to.”)
So, her mother goes through the process from above:
Step #1: Her age
Sarah is 10, so $10 is the going rate from the advice she’s read previously.
Step #2: Money Responsibilities
Sarah’s mom has never thought before to hand her child over a money responsibility with her allowance…and she really likes this idea.
She decides that she wants her daughter to start paying for vending machine use after school, AND, sibling gifts this upcoming Christmas (spending threshold will be $15 each, and she has a sister and a brother).
Up until now, her mother has been giving her daughter $10/week for the snacks (on top of the $10/week in allowance), and paying for the presents she picks out for her brother and sister.
Because of this, she will be upping her weekly allowance from $10 to $15/week.
The mother knows Sarah won’t be able to afford vending machine snacks AND two Christmas presents if she continues spending all of her allowance on vanilla-bean Frappuccinos and candy bars.
SO, she’s going to help her daughter:
- Set Up her First Budget: Her mom will guide Sarah to budget for one Frappuccino every other week, and $10 each week in vending machine snacks. She also helps her think about ways to save on after school snacks to get that $10 cost down, such as buying bulk snacks from the grocery store with her allowance money and taking one in her backpack on days she’ll be staying after school. Sarah’s excited that this could get her vending machine costs down to just $7/week or even less!
- Follow a New Household Money Rule: Her mom introduces a new money rule where everyone must set aside 20% of their allowance to accumulate for bigger purchases, such as the two Christmas presents (planned spending, plus getting her daughter to save money from one allowance pay cycle to the next for the first time!). This means $3/week for Sarah.
Both of these things means Sarah will have to contribute $3 of each allowance to future purchases, and will have $12 left to buy both after school vending machine snacks AND anything else she wants (like the Frappuccinos).
Step #3: Outside Earnings
Sarah currently does not earn any outside money. When she starts babysitting at 12 or so, her mother will reassess this number.
Step #4: Spending Power
This new plan will give Sarah the spending power to buy about one Frappuccino every other week, which is more in line with what her mother wants. She’ll also be given the spending power of buying vending machine snacks, as needed/wanted, and making some prioritized decisions to possibly cut the costs down on those by packing something from home.
Come Christmas, Sarah will be buying Christmas presents for her two siblings with her own money for the first time, and her mother is excited about this new spending responsibility! She feels that her daughter will be more thoughtful in what she’s going to buy now that it will be coming from her own money.
She’ll continue to monitor how the new allowance amount and system is working to see what behaviors she finds her daughter doing – both good, and bad – and then making adjustments to the amount as needed.
But all-in-all, she’s excited about her newly designed kid money system and what it might teach her child! And Sarah is excited about the increase in allowance pay, plus being given more spending decisions.
To finish things out, let’s talk about whether or not giving an allowance to a child is a good idea.
Is Giving a Child an Allowance a Good Idea?
You might still be wondering whether or not giving a child an allowance is a good idea.
Or, maybe you’re just looking for some reassurance for the decisions you’ve made.
I totally get that!
I’ve covered this topic in my article on should kids get an allowance.
But I’ll share the high-level pros and cons here:
Pros to Giving a Child an Allowance
- Gives your child the ability to plan spending
- Gives your child consequences (both good and bad) to their spending decisions that they can't earn their way out of
- Kids not motivated by earning money still have a chance of learning how to manage It
- You can get them to pay for things
Cons to Giving a Child an Allowance
- There might not be a natural connection to the value of money
- There's no extra earning opportunity
- They might not come across as grateful
Wondering about paying for chores, instead? Here’s my article on Should Kids Get Paid to Do Chores – Pros and Cons.
Remember that we’re trying to do something more than just give your child an allowance. We’re trying to design a kid money system that will help them self-discover really important money lessons and skills – the kind they’ll need and use for the rest of their life. Use the calculations and thoughts above to come up with a meaningful amount of money to give your child.
See how they start using it, then tweak as you go. You got this, Mama!
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