Allowance for Kids

Allowance comes up in casual conversation a lot these days, now that I have a school-aged child. Some people feel awkward talking about it, I guess because it’s money. But years ago we decided to track our monthly budget on a giant white board in the kitchen where we could see it, and of course so could all our friends. And some of them even asked us questions about it. (Horror!) Since the world didn’t implode, it seems that talking about money isn’t actually such a big problem. In fact, I think it’s important to talk about it freely if we want to raise financially literate kids.

Anyway… Here’s how we started this conversation for our family.

  • When our oldest kid was 3 or 4, we started talking about how our own parents handled our allowance. We figured out which things we liked about it, and what we wanted to change.
  • We read a bunch of articles, like this series
  • We talked to friends

After the reading and the talking, we came up with our own list of priorities. Once we knew what we wanted to achieve, our allowance system basically created itself. We use allowance as a financial teaching tool, and for it to have any meaning, it needs to be a model of the real world. Our priorities are:

  • Reality
  • Consistency
  • Accountability
  • Usefulness

There’s some good tips on meeting those goals at Money As You Grow if you ignore the US-specific bits.

REALITY

Allowance isn’t tied to chores in our house. Nobody pays me to clean the bathroom! They do have responsibilities around the house, but I view that as part of life. I simply expect all the people in our family to contribute to our daily lives.

We approach allowance as a learning experience, and we also believe everyone in our family should have control over at least a tiny bit of the monthly budget. We started allowance as soon as we saw our kids grasped the basic concept of money, which was age 4 or 5.

We also have bank accounts for the kids, so they’re learning how that works. (Sorry to everyone who’s ever been in line behind us at the ATM on the day they’re depositing their money.)

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CONSISTENCY

Because we view allowance as a tool for teaching financial planning, consistency is key. We hand out allowance once a week. The kids know what they will get, and when, so they can make decisions. When they see something they want to buy, I help them evaluate the choice. How much does it cost? How much do you have? Is there anything else that you might want to have money for? Do you remember how you felt the last time you spent all your money on a stuffed toy?

ACCOUNTABILITY

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They are responsible for their money. While we do help them evaluate their choice, they get to make the choice, and they have to live with the consequences. My youngest recently decided he wanted a toy owl (because we’re into Harry Potter right now). We suggested he ask for the owl for his birthday, which is 4 months away, but he wants it *now* and decided he’d buy it himself. I reminded him about the big ticket item he’s currently saving up for, and he chose to buy the owl.

He had a meltdown when he got home and decided that *actually*, he should’ve asked for a toy owl for his birthday, because now he can’t put that money aside for the item he’s saving up for. While his heartbreak was very sad, he learned an important lesson: You can only spend your money once. I intend both of my children to get to adulthood with that knowledge intact.

USEFULNESS

The allowance has to be useful. We feel it’s important to give our kids a realistic budget for the things we expect them to buy. Right now, their money is only for things like beanie baby key chains (which I sure as heck am not paying for), so their allowance is quite small. We did $1/week in Kindergarten and $2/week in Grade 1. I think we’ll do a fairly significant jump in the amount in Grade 2 or 3, and when that happens I’ll start expecting the kids to use their own money for more things.

When they’re teenagers, we plan to give them budgets for things like going to the movies as well as letting them take care of a monthly bill or two (such as a cell phone). They’ll have enough to meet their commitments and have a little fun, but they’ll have to make choices.

HOW’S IT WORKING?

This past fall, for the first time I gave my 6 year old a big chunk of money to control. She needed a whole bunch of new clothes. I think she had about 5 pieces of clothing that fit.

The adults decided she could have $200, and we made a list of the items that she absolutely had to purchase. She also had a list of things she *really* wanted, including a sweater from Bench. (Because: thumbholes.) We talked about how we would have to shop really carefully to save enough money for a Bench sweater ($50!).

That kid did great. We went to the thrift store, the outlet store, and shopped off the sale racks. And she got that Bench sweater, and she loves it. I think we’re doing OK so far!

Written by Natalie Lawy, a New West parent to two.