Giving an allowance to your child has been a great debate by financial experts over the years. The biggest issue is the type of allowance to use and the resulting financial habits that be taught. Regardless of the method, using an allowance to reinforce smart money habits is an important tool every parent should consider using.
Why is the type of allowance such a controversial subject?
Basically it is on which method is the best to use. One is the chore based allowance that requires completion of weekly chores to earn the allowance. The concern being that kids will only work for money. The other is the pure allowance that isn’t based on weekly chores but comes with the expectation of helping out around the house. The concern being that kids will think money doesn’t require work.
Is there a different approach than these that is better?
An allowance that comes with financial obligations is the best. This means that whatever money you give your children you need to also make them responsible for some of their expenses. Don’t tie the allowance to chores but expect them to help out with daily tasks. If they do something extra, like washing the windows, give them specific payment for that work.
At what age should a parent starting an allowance?
It can be as young as 6 or 7 years old because they are starting learn to learn basic math in school and the allowance can help reinforce that. The expenses you give them might only very minor because I like the idea that until age 16 that you make their weekly allowance their age plus up to $10. So a 6 year old might get $6 to $16 per week and a 15 year old might get $15 to $25 per week.
Are there parameters on what kids should do with their allowance?
The save, spend, share method is one that parents should adopt. This is having them put 10% of their allowance in savings that they don’t use, 80% that they can spend and 10% that they should share with others. This reinforces that they should always be saving at least 10% of their income for the future.
What mistakes should parents avoid making when using allowances?
First, don’t tie allowances to any form of punishment for other actions like poor school performance or behavior problems. Another very important concept is don’t control how your kids spend the money, give them freedom to make mistakes and then help them understand how to avoid those in the future. The most important, don’t bail your 10 year old out of a budget crisis. Learning to plan their spending is one of the most important objectives of giving an allowance to your kids.