Parents have many child-rearing decisions to make, based on their own upbringings and beliefs. Deciding if, how and when to pay your child allowance is a decision you may struggle with. Should you just give your kids money every week? Should the kids have to work for it? An allowance system gives kids many opportunities to learn financial literacy in a very hands-on way. It gives them experience with budgeting, planning, wise spending and saving. They may even choose to donate some of it. Ultimately, the allowance system you choose has to be in line with what you want your children to learn about money and your expectations for what they will have to pay for. When choosing your allowance method, here are some considerations to factor in.

How Early?
When should you start paying allowance? That decision varies from family to family, but, in general, as soon as kids begin wanting to spend money on toys and games, they can begin to understand the concept of a weekly allowance. Sometime in the 3-5-year-old range, kids become aware of spending money. They are old enough to start recognizing and counting money at this age. Once they can compare how much they have with what a wanted item costs, they are ready for rudimentary cash management experience.

Flat Allowance Vs. Pay-For-Work
Before deciding on how much to pay your children in allowance, you should outline and agree upon whether your kids will get a set amount per week or whether they will have to work for the money. Many families tie allowance to chores, but others feel that kids should be doing chores as part of being a member of the family without pay. After all, you don't get paid for doing the dishes or taking out the garbage. One guideline that many parents follow if choosing the flat rate method is $1 per year of age per week. For example, an 8-year-old will receive $8 a week. How ever much you choose has to fit in with your own family budget.

One way to balance both concerns is to have a set of everyday (or every week) chores that your kids will have to perform without pay and then give them a list of other chores they can do for money. For example, a 12-year-old girl might be responsible for keeping her room clean, unloading the dishwasher nightly, and vacuuming the den as part of her regular chores. She may have opportunities to earn allowance by doing other chores, such as washing the kitchen floor, raking leaves or weeding the garden. These chores may vary weekly depending on the work needed to be done. The amount paid for each chore should be tied to the complexity and effort required, and the child's age. In general, older children will receive a higher allowance, based both on the fact that they are doing more chores and their spending needs are higher.

Decide What You Want Your Kids to Pay for
Regardless of whether you choose the flat rate or work-for-pay model, you will have to come up with an allowance rate. One of the main determinants of how much you should pay is what you expect them to pay for. If you want them to pay for their school lunches and uniforms out of the money they get, you will have to pay them more than if they only have to pay for extras, such as video games or movie tickets. Before setting up the plan, write up a clear list of purchases your child will have to make from the allowance, as well as any proportion that must go to longer term savings or investing.

Make Allowance Comparable to Other Families
A softer consideration, but one that will become important to your kids, is how much other parents are paying. Checking around with other parents will give you an idea of the going rate so that you can figure that into your calculation.

The Bottom Line
Determining what to pay your kids in allowance is a decision that will be based on many considerations, including your family's values and beliefs, and your vision for teaching your kids about financial responsibility. The key is to make the allowance plan clear for all family members and stick to its rules. The amount that you give your children in allowance is not as important as the lessons it teaches.

Related Articles
  1. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  2. Budgeting

    The 5 Most Expensive States for Child Care

    To get a better sense of how child care costs can fluctuate, here's a look at the costs of child care across the country.
  3. Home & Auto

    Looking To Invest In Home Improvements?

    Some home improvement projects could cost you more to complete than they’ll pay out in equity. So, here we show you the worst projects to avoid.
  4. Fundamental Analysis

    Understanding the Internal Rate of Return Rule

    The internal rate of return rule is a popular method used to compare investments or projects.
  5. Home & Auto

    Are Home Inspections Worth It? - Price vs. Value

    If you’re wondering whether home inspection is worth the investment, the following information will help you decide.
  6. Budgeting

    How to Defray Long-Term Care Expenses

    Here's a handful of options on what you can do to defray long-term care expenses.
  7. Budgeting

    The True Cost of Home Caregiving

    Caring for eldery family in-home might be unavoidable, but most caregivers don't realize the true cost of doing so.
  8. Budgeting

    Is Level Money the Perfect Budgeting Tool?

    Here’s a detailed review of how Level Money works and whether it could be the perfect tool to help you budget.
  9. Retirement

    Advisors: Broach this Topic with Grandparents

    Talking to older clients about financial planning for their grandchildren may help secure a new generation of clients.
  10. Economics

    Explaining Budget Surplus

    Budget surplus is an economic term describing a situation where revenue exceeds expenditures.
RELATED TERMS
  1. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  2. Credit Card Authorized User

    Definition of an authorized user of a credit card.
  3. Debt Consolidation

    The act of combining several loans or liabilities into one loan. ...
  4. Personal Spending Plan

    Similar to a budget, a personal spending plan helps outline where ...
  5. Millennial

    A name given to the generation born between 1982 and 2004. The ...
  6. Fudget

    A falsified statement of income and expenses. A fudget or "fudget ...
RELATED FAQS
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  3. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  4. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  5. How do I use the rule of 72 to estimate compounding periods?

    The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >>
  6. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!