If your child is old enough to understand the concept of money, you’ve probably considered giving them a weekly or monthly allowance. Until they grow old enough to apply for a job, an allowance is really the only way to give them real world experience in money management.
But how do you decide the right amount? Should an allowance be given freely or tied to chores? How much control should you exert over the purchases they make? Is it even a good idea to give an allowance in the first place?
During my years working as a personal finance writer, I’ve met plenty of financial experts with children. Here’s how some of them approach the topic of allowances when it comes to their own kids.
The Case for an Allowance
The experts agree – giving your kids an allowance helps them practice money management skills and learn about budgeting – but the best way to implement an allowance, and how much to give, is still a topic of debate.
Cindy Scott of Smart Family Money started giving her son and daughter an allowance when they were five and seven, respectively. Several years later, they’re using the money for fun things like Pokemon cards, Legos and video games. Scott still pays for books and hobbies, like art supplies for her daughter, baseball equipment for her son and anything else that teaches them a skill.
Scott said that since making financial mistakes is a part of growing up, she lets them spend their allowance on whatever they want. She can already see them becoming more cost-conscious and wary.
“If they want something, I’ll say, ‘Sure, you can get that with your own money,’” Scott said. “It’s funny how often they decide they don’t want it anymore.”
Financial coach Kelsa Dickey of Fiscal Fitness Phoenix believes that an allowance teaches kids financial behaviors they don’t learn in schools. It’s not enough to explain to your child why saving for big goals is important – they need the opportunity to do it themselves.
“If your teenage daughter spends her allowance on something today and can’t go to the movies this weekend with friends, while we know it’s not the end of the world, it will very much feel like that to her,” Dickey said. “But it’s a less painful lesson than learning it after you’ve spent your mortgage payment money for something else.”
How to Structure an Allowance
Personal finance writer Miranda Marquit of Planting Money Seeds has been giving her 17 year-old son an allowance since he was four or five. Now that he’s almost an adult, he uses the money to pay for gas, school lunches and discretionary items.
“It’s not enough money for him to go out to lunch all the time, or do all the things he wants to do,” she said. “If he wants to make extra money, he does odd jobs for others or sells hand warmers that he makes.”
Marquit doesn’t tie the allowance to chores because she believes chores are something everyone has to do in a family. She wants her son to help out because he lives in the house, not because he’ll get paid for it.
Catherine Alford has a similar approach to chores with her twin children. She wants them to understand that money only comes when you work for it. They each have a regular list of chores they do for free, but have the opportunity to earn money when they do extra errands outside of that. Alford gives them a quarter each time, which they can use for toys and games.
How Much to Give
Deciding how much to give your kids is tricky. A rule of thumb is to divide their age by half and use that as a benchmark. A 10 year-old would get $5 a week, which would increase to $5.50 a week when they turn 11. A survey from app RoosterMoney found that the average five year-old received $4.21 a week and a 12 year-old got $8.95 a week.
You can also ask other parents with similar aged children how much they receive. It’s good to give them enough to do something, but not enough to do anything they want. The allowance should teach them how to make hard choices with their money.
Some parents also try to designate how their kids use an allowance, allocating it between spending, saving and donating. Spending money is for everyday items like a new movie or video game, while saving is for long-term goals like buying a car. They can donate money anytime they see a fundraiser, a person in need or a cause they want to support.
How to Distribute an Allowance
If you have small children, cash is the best way to go because it feels tangible and real. They can put it in a piggy bank, in a purse or in their school bag. Younger children also may have trouble conceptualizing the idea of credit and digital funds.
Older kids are more inclined to shop online and on their phones, so they need access to a debit card. Many banks allow children with checking accounts to get debit cards as young as 13.
If your children are between the age of piggy banks and debit cards, you can use a service like FamZoo which provides a prepaid card for kids that parents can load electronically.
Talk to your kid about what makes the most sense. If your child is mostly buying physical items, then cash might work better. If they’re starting to transition to online shopping, a card is probably more practical. If they get a debit card, show them how to check their balance, avoid overdraft fees and watch out for fraud.
Avoid being a helicopter parents when it comes to your child’s allowance. If you see them buying a video game at Best Buy when it’s $5 cheaper on Amazon, don’t lecture them. Be a good example of frugality and they’ll learn from your example over time.
Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.