Many parents aren’t really sure how/when to start giving their kids an allowance. Most experts agree that setting up an allowance will help children to make decisions about saving and spending and can help them to budget money for when they get a “real” job in the future.
If you do feel like giving allowances is the right choice for your family, most experts agree that the time to start is when your child starts to show an interest in money. This usually falls between the ages of 6-8. Take note of when your child realizes that money can be used to buy things they desire. That’s usually a good barometer to figure out if they are ready to manage an allowance.
The “going rate” also varies widely. The usual amount paid is anywhere between $5 and $20 per week. This will vary based on age (start small and increase as your child gets older) and number of children and their ages (your 7 year old may not get the same amount as your 15 year old). In addition, a larger family size may mean lower rates all around. For a helpful allowance calculator, go to pediatrics.about.com/od/toolsandcalculators/l/bl_allcalc.htm.
Provide your child with a wallet so that he or she can be responsible for their money.
The general consensus is that you should not pay your children to do specific household chores. This way, they don’t expect payment for every deed performed. There should be a list of chores that you expect your children to perform simply for being a member of the family. This method allows you to give extra incentives for special projects, such as a yearly fall clean-up of the yard. Older siblings might get an extra amount of money if they are expected to babysit for their younger siblings. Also, it is not a good idea to pay for homework or good grades. Instead, taking your child out for ice cream or to a movie might be a good reward for a top notch report card.
Paying your child a set amount of money per week is a good idea. This mirrors adult life, when adults get paid at a set time. It also helps them to budget their money if they are saving for a larger ticket item. Make sure that you stick to your end of the bargain by paying them on time each week (for example, every Sunday). It can be hard for kids to try to budget and save if they are not paid on a consistent basis. Another payment option is to set up a savings account for your child (take them to the bank with you) and set up an automatic transfer from your account to their account each week. If you choose this option, encourage your child to check their account (with your supervision, of course!) so that they can see how their savings are growing.
If you would like to encourage your child to save as well as donate, you might want to set up a save/spend/donate plan. The arrangement could work something like this: Assuming they have an allowance of $5/week, tell them that you expect them to save $1, donate $1, and they can spend $3 of that amount.
For most families, parents provide the necessities, and allowance money can be used by the child for the “extras”, non-essential items that they would like to buy (e.g., trips to the candy store, toy store, or deli). When setting up the guidelines for an allowance, let your kids know what they are expected to pay for to alleviate any confusion later on. You should also work out an arrangement for larger ticket items. For example, my son wanted to purchase a 6 month subscription to Disney’s Toontown website for $50. He only had $20 saved up, so we agreed that he would not get his allowance, which is $5 per week, for the next 6 weeks. We marked it on the calendar so that he would have a visual to help him realize the timeframe involved.
Every family is different, and there is no one correct way to do it, but most experts agree that setting up an allowance plan helps with money management skills, budgeting and decision making for the future.
For some helpful website information on allowances, visit: hffo.cuna.org/12433/article/107/html.
-Lory M.
Sage Personal Finance 