To give or not to give your kid an allowance? That’s a question each family must decide for itself. Today, 61% of American parents give allowances to their children, according to Harris Interactive.
Allowances help teach kids that things cost money and that they can use their own money to pay for things they want. Allowances also provide kids the opportunity to learn powerful financial lessons, such as how to distinguish between wants and needs, how to delay immediate gratification, how to avoid impulse buys, and how to earn, budget and save.
When is the best time to start your kids with an allowance? Around age six, says Lorraine Breffini, director of early childhood at Southeastern University. That’s when kids usually can tell the difference in worth between all kinds of coins and bills, and when they can compare prices at the store.
How much allowance should you give your child? The general rule of thumb is 50 cents or $1 each week for every year of your child’s age. So, a six year old would get an allowance of $3 to $6 per week.
Another common rule of thumb: The allowance is for your kid’s savings and discretionary spending. Parents should continue to cover essentials, such as lunch money, school field trips, household food, clothing and shelter. That leaves the allowance for your child’s savings and “fun money” – to buy things such as toys, treats, accessories and movies (that aren’t family excursions).
Should allowances be associated with assigned chores? That’s debatable. One pro-chore hardliner is financial guru Dave Ramsey. He says you should be giving your children commissions, not allowances. “Don’t just give your kids money for breathing,” he says. “Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room or mowing the grass. This will help them understand that money is earned—it’s not just given to them.”
Paul Golden, president of the National Endowment for Financial Education, weighs in on the other side of the issue. An allowance should be used “only as a means of teaching money management – not as a source of reward and punishment or as a means of control,” he says.
The rationale for keeping chores and allowance separate: Kids should expect to pitch in to do chores because they need a sense of contributing to the common family good, not because of financial reward. If you pay kids for basic chores, you rob them of experiencing family and team responsibility, adds retired New Jersey psychologist Kelly Blakeslee.
At any rate, many financial writers encourage parents to suggest ways for their kids to make extra money by volunteering to tackle unassigned bigger family chores, such as shoveling the walk or washing the car – or providing these services for pay to neighbors.
Another question to consider: How much free reign should kids have on how they manage their allowance? Some financial writers recommend that you structure how allowances should be used. Here’s how Ron Lieber, a personal finance reporter for The New York Times, structures the weekly allowance for his daughter: $1 goes straight into savings, $1 is free to spend and $1 goes into a jar for a worthy cause of his daughter’s own choosing.