There are two general schools of thought in regards to paying kids an allowance: Kids should earn money in exchange for doing chores, or kids should not be paid for regular contributions that are expected of every family member. In the latter case, kids are either regularly given money unconditionally, given money as needed, or they must earn it some other way.
There are pros and cons to every method of administering an allowance to children. However, the ultimate point of the allowance, regardless of how it is given, is to teach your kids money management skills. It is apparent that the skills necessary to manage money effectively are not being learned in school, but must begin at home.
The Unprepared Generation
A 2008 survey by Jump$tart Coalition for Personal Financial Literacy found that college students who had taken financial management courses in high school fared no better in money management than students who had not taken such a course, while a June 2010 study by Capital One Financial Corporation found that almost half of graduating high school seniors didn’t feel competent to handle their own finances. Interestingly, the 2010 study also found that the more frequently kids talked to their parents about money, the more capable they felt in managing their own finances.
What this suggests is that simply providing your kids an allowance isn’t enough. According to Lewis Mandell, Ph.D. and author of the 2008 Jump$tart survey, an allowance must be combined with regular discussions about how to manage the money.
Types of Allowances
If you do choose to give an allowance, there are several options to consider.
1. The Unconditional Allowance
The unconditional allowance consists of giving a regular amount of money without requiring the child to earn the money by doing chores. On the plus side, any allowance given weekly, biweekly, or monthly gives your child the opportunity to manage money on a regular basis in a way that’s similar to a paycheck. It’s easier to apportion funds for specific purposes, and the child can plan ahead based on expected future income.
The downside is that this method doesn’t teach your child that pay is compensation for a job well-done. This is especially true where the weekly allowance is supposed to be based on the child doing chores regularly, but there is no effort on the part of the parents to make sure that the chores are done – meaning the money is essentially free.
This viewpoint is borne out by Mandell’s research. According to a 2000 Jump$tart Coalition survey entitled “Improving Financial Literacy – What Schools and Parents Can and Cannot Do,” kids who received an unconditional allowance had the lowest rates of financial literacy and were more likely to have a poorer work ethic.
2. The “Pay as Needed” Allowance
With a “pay as needed” allowance, kids don’t regularly receive a set amount of money, but instead ask their parents for money as they need it. On the negative side, the kids haven’t necessarily done anything to earn this money, and if it is in fact contingent on the assumption that they are regularly doing chores, the correlation is neither immediate nor strong. This allowance structure also doesn’t provide money consistently, which makes it difficult for a child to save for future expenditures. However, it does necessitate frequent discussions about money, as each request must be evaluated on its merits.
Ideally, under this scenario, if your child wants an e-reader, an aquarium, or a new bike, and there is no major holiday or birthday in sight, he or she would ask you for the money and you would determine whether your child has earned the money or what she or he can do to earn it, or a portion of it. This scenario forces both you and your child to consider money management each time a situation arises. This method may be suitable for parents who don’t feel kids should earn money for doing chores, but should rather receive the funds simply by virtue of being a member of the family.
3. The “Earn Money for Chores” Allowance
This is the most common type of allowance. Kids are expected to do certain chores around the house in exchange for money. This is often a set amount of money for a list of chores that must be done each week. The benefits are that the child sees a direct correlation between effort and the money he or she receives. But for this to be effective, there must be consequences when the chores are not done; this, in turn, requires parents to keep track. And if there are several children in the household, that may be difficult.
An alternative is to have a list of chores with a set price per chore. You might require your child to choose a minimum number of chores, or leave it up to her or him. More involved work pays more money, while quick or easy tasks pay less. If your child doesn’t do the work, then he or she should not be given spending money.
4. The Hybrid
This is the method I and many other parents use. As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.
My son shovels snow, does light yard work, empties the dishwasher, makes his bed, takes care of his pets, and does some light housework, all without pay. For bigger jobs, such as heavy cleaning, a big yard project, or a great deal of shoveling, he gets paid per job. When he wants to earn extra cash, he knows he can ask me for a job or project, and I can always find something.
I went with this arrangement because my son would like to own his own business someday, and this is a way of teaching him that the harder he works, the more money he makes. It’s a lesson he’ll learn eventually in the working world, but why not start now?
However, this model is not without its drawbacks. When I have a big job that I need help with (like cleaning the basement), if it’s something he’s opposed to doing, no amount of money can entice him to help. In that case, I remind him that he can work for pay or work for free – but either way, he’s going to work.
It’s important to allow yourself some flexibility. The method you end up using may not be what you started with, as your child may not respond to positive or negative reinforcement as initially expected. Ultimately, you could find that you need to change your method to get the best results.
What Is the Going Rate?
If your child comes home from school with stories about the exorbitant amounts of money his or her friends get for their allowances, consider this simple guideline before caving in to demands to “keep up with the Joneses.”
A general rule of thumb is to pay $1 per year of age on a weekly basis, so a 10-year-old would earn $10 per week, a 14-year-old would earn $14 per week, and so on. If this seems high (or low) to you, you can come up with whatever seems reasonable based on how much work gets done (if you link the allowance to chores), how many children you give an allowance to, what your allowance budget is, and what type of allowance system you use.
If a straight $5 or $10 per week (or even per month) makes more sense to you than paying a dollar per year of age, then pay what works for you. The point is to teach your kids money management and the value of money. If you pay them too much, even if their friends “earn” this amount, you may encourage them to feel entitled to money as opposed to instilling the desire to work for it and the pride in earning it.
Where Does the Money Go?
It isn’t enough to give kids their own money and expect them to learn responsibility. We as parents must also teach them to manage it, because when left to their own devices, few kids will manage money well.
A 2012 survey by the American Institute of CPAs found that the average American child makes around $780 per year from his or her allowance, or $65 per month. However, only 1% of parents said their kids actually save any of their allowance. Instead, most of the money is spent on toys and while hanging out with their friends.
Teach Kids to Apportion Funds
Just like we earmark (or are supposed to earmark) a percentage of our paychecks toward savings and retirement, we should teach our kids not to blow all their money as soon as they get it. A portion of each allotment may be utilized for immediate spending, but a portion should also go into savings. Teaching kids the importance of building up a savings fund is extremely valuable.
You may also want to encourage children to reserve a percentage of their earnings to donate to charity. Having them choose the charity of their choice will make them more likely to set aside the money. Just like we give to charities that matter to us, children also need to give to a charity that matters to them, or they won’t be motivated to do it.
A simple three-jar method can be an effective means to help kids distribute their money and watch their savings grow. Get three large jars and label accordingly: spending, saving, and charity. Older teens, especially those with part-time jobs, should also be encouraged to save some of their money for future expenses, such as college, a car, or a trip.
Allow Them to Spend
Part of teaching money management is allowing kids to spend their hard-earned money on something they truly want. My son keeps numerous tanks of pet fish, and as long as he takes care of them, it doesn’t matter to me if he wants to spend his money on purple gravel or more aquarium plants. Kids also need to learn that work merits rewards.
With age comes greater responsibility, and that includes being responsible for personal spending money. Younger teens, especially those that might make money doing odd jobs such as cutting grass, raking leaves, or babysitting, might be expected to pay their own way at the movies or when they go out to eat with their friends. Older teens may be expected to pay for gas or contribute money toward the family cellphone plan, as well as pay for some of their personal expenses.
Different Chores for Different Ages
If you’d like to link your child’s allowance to chores, how early should you start? Kids as young as the age of three may not fully grasp the concept of an allowance, but they can start learning family responsibility by performing a few easy tasks.
Here are some appropriate chores for kids of all ages:
- Young children ages three and four can learn to fold washcloths, put napkins on the table, fill the dog’s food dish, put their toys away, and help sort laundry into different baskets.
- Kids in the five to seven age range can handle slightly more complex tasks: They can learn to fold towels and other laundry, do some light dusting, put dishes in the dishwasher and help to empty it, help set the table, fill a pet’s food and water dishes, water outside flowers, and do some weeding in the garden.
- Kids 8 to 10 years old can set and clear the table, vacuum, sweep, dust, take out the garbage, bring in the mail and newspaper, help weed the garden, shovel snow, rake leaves, walk the dog, sweep out the garage, make their beds, and clean their rooms.
- Kids 11 to 13 can learn to do laundry, wash the dishes, mow the lawn, trim hedges, help prepare meals, wash cars, clean bathrooms, and babysit younger siblings.
- Older teens have the increasing capacity to earn money outside the home. Not only will their reliance on an allowance diminish, but they may have very little time for chores if they are already balancing school, work, and extracurricular activities. They also are likely to have less interest (not to mention motivation) in doing household chores. You can decide at what point it seems right to discontinue the allowance for older kids.
While these are general guidelines, you are the best judge of your child’s maturity level. You don’t want to force kids to perform chores (such as lawn mowing) that they aren’t capable of performing well or comfortable doing. On the other hand, I found that it doesn’t hurt to ask them for ideas. My son, when he was not yet handy with a lawnmower, surprised me by offering to trim the bushes with the hedge clippers. I was hesitant, but he proved to be very capable, and actually enjoys doing it. My son also enjoys snow shoveling, so that job gets left to him with my blessing.
If kids are allowed to concentrate on chores they like or don’t mind doing, they are more likely to be consistent with helping out. They must, of course, have to do chores they don’t like, but I’ll often give my son a choice. Knowing that he hates cleaning the bathroom, I’ll give him a choice of that or vacuuming, knowing he’ll choose the latter and figure he got off easy. As long as work gets done and I have help around the house, I’m not going to be too picky about which chores he does.
If you are going to use chores to keep track of what your kids earn, you might find it helpful to use a chore chart or house cleaning schedule. You can find many types of charts on the Internet for free, such as those found on KidPointz.com. This is especially handy if you must keep track of chores for more than one child. You can also create your own chart.
A chart provides a good visual for kids of all ages. Young kids might like to put stickers on the chart once they’ve completed a chore, as it gives them a sense of pride and accomplishment. Older kids can easily see which chores they have completed, which chores have yet to be completed, and (if you pay per chore) how much money they can expect to receive for the week or month.
As a parent, a chart allows you to keep track of what you owe, especially if under your allowance system you subtract from your child’s allowance for chores that weren’t done, or add payment for chores that are completed in addition to the regular work you expect to be done.
Other Ways to Teach Money Management
Giving an allowance isn’t the only way to teach your kids about money – and there is no rule that says it can’t be fun. You can also teach your kids money management skills by playing board games like Monopoly and The Game of Life. Kids can learn about money and investments, and it provides you with an opportunity to have financial discussions with them in a way that doesn’t turn them off or bore them to tears.
To begin to teach young children and toddlers the value of money, set up a pretend store and show them how to pay for things and how to save for things they can’t afford. There are also online money games available for kids of all ages, like those found at DoughMain. Sesame Street offers several multimedia programs for younger kids about spending and saving, including one called “For Me, For You, For Later.”
There are different schools of thought as to what type of an allowance is appropriate – but regardless of what kind of system you use to funnel money to your kids, the most important component is to have frequent discussions about how they manage their money. It’s so easy to get caught up in the bustle of our daily lives and forget the long-term consequences of our actions (or of our inaction). As parents, our primary job is to prepare our children to successfully handle life in the world by teaching them crucial skills, and money management is certainly one of them.
What allowance method do you use? Does it seem to help your kids learn to manage money?