Updated: Aug 2, 2019
Providing your child an allowance is a hotly debated topic. Some parents feel like the child needs to work to earn it. Other parents feel that the child should get an allowance simply out of generosity. And there are some parents who don’t give their children an allowance at all. There are pros and cons to each viewpoint. However, I think a child needs to get an allowance in order to learn important life skills, and as such, I favor a combination of the first two approaches.
When do I start giving an allowance?
I highly suggest giving each child an allowance at an early age, as soon as they can understand the concept of money, probably around age 5. So many adults these days are absolutely clueless when it comes to money management, even though most of the concepts can be easily understood by a child. Therefore, I believe it is imperative that children learn how to manage money properly and responsibly at a young age in order to develop healthy money habits that will serve them well into adulthood.
How much should I give them?
The method I plan to use is based on how my parents gave me an allowance. It was so effective in preparing me to manage my own finances that it requires no modification. Starting when I turned 5 years old, I would receive $0.50 per week, and it would increase each year as my responsibility increased. The table below shows my recommended weekly allowance by age. You may now be screaming "$50 per week to my teenager! I can't afford that!" Once your child turns 12, you should start increasing their purchasing responsibilities and make them buy their own clothes in addition to other non-essential spending. So while $50 per week may sound like a lot, this is the money they have to buy clothes, go grab fast food with their friends, and buy video games and consoles. This money should also be saved by them to help offset their cost of continuing their education after high school, which also helps rationalize this weekly amount. However, by the time they can drive themselves (usually age 16), stop giving them an allowance and indicate that they are to get a job in order to make money.
Should they do chores to get an allowance?
My allowance was the money I would receive each week for being a productive member of the household, meaning I completed all the chores that were expected of me such as taking out the trash, unloading the dishwasher, feeding the family pets, cleaning my room, and fixing my bed. No dollar amounts were tied to any of these chores, so if I failed to complete any one of my chores, my entire allowance was withheld. However, there were other opportunities to earn additional money by doing tasks above and beyond my required chores, such as vacuuming the house, mowing the lawn, or pulling weeds in the garden and flowerbeds. Obviously, the work was suited to my age, so I as got older, items like mowing the lawn or vacuuming my bedroom went from being an extra job to an expected chore.
How should it be spent?
From my allowance each week, I was expected to tithe 10% with 5% going to our parish and 5% going to a quality charity of my choice. I could then use the remaining money to buy anything I wanted, with my parents’ permission of course. Until I was old enough to open my own bank account, they controlled the money, so in order for me to spend anything, I had to request a withdrawal from the “Parental Bank”. If I ever went to my parents and asked for them to buy me a specific snack food, name-brand shoes that everyone at school was wearing, a toy, or a book, they would always respond “Use your allowance. That’s what it’s for”.
What are the benefits?
It teaches thriftiness and instills a strong work ethic.
Although quite simple in practice, giving your child an allowance teaches innumerable positive skills and habits. My parents were extremely savvy in that they always gave me enough allowance to buy what I needed, but never enough where I could spend frivolously. To buy clothes (which I would outgrow within 6 months during my teenage growth spurt), I had to shop sales racks and consignment stores, and could never afford anything name-brand. I learned the value of a dollar.
It allows them to experience the consequences of frivolous spending.
When I was 5 years old and first started receiving an allowance, I saved and saved until I earned $4, which took several months. Ready to spend my fortune, I went along with my mom on her next shopping trip. I scoured the store for something to buy (note that I didn’t have anything in particular in mind and just wanted to spend the money I had) and ended up purchasing a small pack of glowsticks with plans to use them as a cool night light in my bedroom that night. I activated all of them when I went to bed, and woke up the next morning to find that they had already gone out. Six month’s worth of allowance down the drain!
I’m thankful I learned this valuable lesson while only wasting $4, because sadly, many adults don’t learn these lessons until they are thousands of dollars in credit card debt.
It teaches a great lesson in economics.
If you are home-schooling, an allowance provides a great avenue for teaching basic economics. For one, it teaches the principle of “opportunity cost”, which in economics means that once money is spent on one thing, you lose the opportunity to spend it on anything else, save it, or invest it. Giving an allowance to your child ingrains in their mind that whenever they go to buy something, to ask themselves if that money is better used elsewhere. This helped me immensely once I reached college, when there were so many opportunities to overspend at restaurants, at bars, and on entertainment. Learning this skill helped to forgo a morning coffee, avoid an expensive night out, and reject impulse buys in order to pay off my credit card each month, pay rent, save up an emergency fund, and invest for retirement. This also helped me stay out of trouble, since I was less tempted to stay at bars until early morning hours and smoke cigarettes or other illegal substances because I didn’t have extra money to spend.
It conditions them to avoid debt.
As your child gets older, you can also structure allowance to help them learn about debt. It is imperative that your children understand debt, and the difference between good debt and bad debt. One time, when my sister was 12, we were at the store and she saw a $15 Minnie Mouse wrist watch that she really wanted. She didn’t have her money on her (it was still in the Parental Bank), so she asked my mom to buy it and she’d repay her when we got home. So my mom bought it. When we got home, my mom discovered that my sister only had $10, not enough to purchase the watch. So my mom confiscated the watch and made my sister make weekly payments from her allowance until she had paid off the watch in full with interest (Tough love, right?). When my sister learned that she ended up paying $20 for a $15 watch, she wasn’t too happy, but she learned a valuable lesson about debt.
It builds virtue.
Most importantly, providing an allowance can help your child develop virtue. You ingrain the habit of tithing 10% of their income so that they learn to be generous with what they have. An allowance also conditions them to spend money wisely and for good purposes, helping them to avoid the lies of consumerism and modernism.
So, that's our family's allowance philosophy. Obviously, there are more than one ways to skin a cat, so we'd love to hear what your family does in the comments!