Do your kids constantly ask for money? No matter what you say – not today, I’m out of cash, or we’re all out for the week – they always want to buy something “just this once.” And many times, you end up giving in.
Ready to put an end to that? Consider setting up an allowance program for your child. One that’s not tied to chores, grades, or behavior. Just money that your child receives from you every week, no questions asked.
To many parents, this may sound counterintuitive. Especially if you grew up having to work for your money – and still do! But, contrary to popular belief, a steady allowance can provide your child with important lessons on personal finance. If you want to give your child the tools to manage their money wisely, an allowance program could pave the road to your kid’s financial freedom.
What Your Kids Learn from an Allowance
Allowances are one of the best ways to introduce your children to money management. Although you may think that money is not a need for your child – and that is true – kids need to practice using money.
These are some of the valuable financial skills that an allowance can provide for your children:
Learning How to Budget
Part of giving your child an allowance is helping them become responsible for their own money. Because most kids have a long list of things they want to buy with their allowance, they quickly learn that money is a limited resource.
When you first give your child money, they may want to run to the store and buy the entire toy aisle. But that won’t last long. As soon as they see the price tag, your child will learn their first money lesson: You can’t buy it all, so you need to make a plan on how you’ll use your allowance.
Setting Goals and Priorities
To budget their allowance, your child will need to make some decisions. Creating a budget will also allow them to figure out the expenses that matter most to them. This process will bring up conversation topics such as:
- Making the distinction between needs and wants
- Identifying the wants that bring more happiness or add more value to your child’s life
- Realizing that there are other wants that can wait until later
- Understanding that saving some of your money can help you buy the high ticket items that you want most
Making Savings a Habit
Saving money to reward yourself later is a difficult concept for kids to grasp. They may understand the logic behind it, but actually choosing to set money aside for a later date takes a lot of willpower from a child!
The best way for your little one to learn this is through practice. Just like your child trains for their favorite sport and continues to get better, they also need to practice their financial skills to make smart money decisions in life.
When your child saves up for something and can eventually buy it for themselves, this also makes them feel empowered. Reaching their goals provides them with a sense of accomplishment and pride that carries on in other areas of their lives.
Experiencing the Value of Sharing
Having access to money makes many children appreciate what they have. You can use this as a teaching moment when your child receives an allowance. By reminding your child that they will continue to receive an allowance every week, you can gently encourage them to share what they have.
A steady weekly allowance is an opportunity for your child to find joy in helping others. Whether they choose to buy a gift for others or donate toys to a charity, this is a chance for your kids to learn how to do good with their money.
How to Set Up a Good Allowance Program for Your Kids
If you feel that your kids are ready to receive an allowance and manage their money, it’s time to create a plan that supports their financial education. Setting up your child’s allowance as a steady income allows them to budget their spending and set up goals for themselves.
By discussing these goals with your child, you can help them split their allowance into three categories: savings, sharing, and spending. The exact percentage you allocate to each category will depend on you and your child. The key is to set up a system that they can commit to.
It’s a good idea for your child to set their goals for each category of their budget. If your child gets a $20 weekly allowance from you, they could:
- Set money $10 aside each week until they have the $50 they need to buy a new doll
- Save $7 each week until they reach $35 and contribute to their college savings account
- Take $3 from their weekly money to put into their charity fund and, once they’ve reached $15, they can buy canned food for the nearby animal shelter
To make tracking easier for your child, you can help them set up a jar system. You can also use three boxes or envelopes and let your child decorate each one of them. This will encourage sound spending habits and bring a smile to their face every time they set money aside for their own goals.
If you want a follow-along guide for setting up an allowance program, check out David’s book: Allowance Magic.
Your Child’s Allowance and their Chores
If your child’s allowance is not related to their chores, it’s important to make sure they understand that they still have responsibilities around the home. As important members of the family, kids play a role in household tasks. You can explain to your child that because they are mature enough to pitch in, they are also mature enough to receive an allowance.
How Much Should Your Child’s Allowance Be?
The exact allowance that your child gets every week is for you to decide. Many families calculate this amount based on their children’s ages, at roughly $1 per year of age. However, there’s no right or wrong amount because it ultimately depends on where you live and how much you consider appropriate for your little one.
If your kid’s allowance is tied to their chores or other responsibilities, you can assign a different dollar value to each task. For example, watering the plants is easier than doing the dishes. By dividing your child’s weekly allowance into several chores, you can balance their duties and keep track of the work done.
Does your child already have an allowance? You can still use these ideas to optimize their income and help them make the most of their money! By adjusting their allowance amount and helping them create a budget, you can teach your child valuable financial lessons. Check out our kids’ allowance survey for more data on specific amounts.
It’s easier to explain financial concepts to kids when they understand certain words. Here are some allowance definitions that can help you get the money conversation started with your little ones:
- Barter: Exchanging goods or services for other goods or services, without using money.
- Charitable gift: When you provide money or goods to help those in need.
- Contract: A legally binding agreement between two or more parties.
- Deposit: Adding money to an account. This could be a checking, savings, or investment account.
- Income: The money you earn from your job or your investments.
- Personal Finance: The system that each person uses to earn, manage, and spend their money.
- Spending Plan: Another word for budget.
- Wage: The money earned for work. Wages are usually calculated per hour, day, or at a fixed fee. They are often paid weekly, bi-weekly, or monthly.
Books to Help You Teach Your Child How to Manage their Allowance
Whether you are a budgeting boss or new to money management, you can help your kids make the most of their allowance! We’ve rounded up the best books for parents to help their children while also brushing up on financial literacy. Check out our entire list of kids’ allowance books for parents for more recommendations!
Money is a practical tool, and it helps to see it as one. If you’re a busy parent with little time to read, but a genuine interest in preparing your child for their financial future, Raising Your Money Savvy Family is the audiobook for you. With a focus on the next generation, this book helps parents understand their children’s feelings toward wealth, how kids can learn from their financial mistakes, and everyday techniques to manage money.
You might give them the allowance but, once you hand your children their money, it’s theirs. Teach them how to use their money wisely with the help of Your Kids, Their Money. This book helps you gain a big-picture perspective of money and explain it to your children with a comprehensive approach.
Most Fun to Read
Kids and parents will get a kick out of Money Master or Money Monster? It’s the entertaining, quick read that packs a punch. Its short chapters keep readers engaged while also delivering valuable money lessons that’ll last a lifetime. It’s an excellent starting point for parents and children starting out their financial lessons.
An allowance program for your kids can help teach them about the value of money. It also develops a sense of savings and gives them opportunities to have fun! By setting up a system that empowers your children, you can create a productive habit that develops a healthy understanding of money and its role in life.