How to Choose an Allowance for Your Child

Many parents finding giving children an allowance to be a meaningful way to teach them about responsibility and the value of money. However, there are a number of things to consider, including how much to give, when to distribute the money, and whether or not to set any rules for getting and using the allowance. If you are clear, consistent, and supportive, your child can have fun while learning valuable lessons.

Part 1

Part 1 of 3:

Starting Out

Many experts think that children are ready for an allowance by age 10.^{[1]XResearch source} Others, however, say some children may be ready as early as pre-school.^{[2]XResearch source} As a parent, it is up to you to decide when you want to begin giving your child an allowance; choose an age when your child understands what money is, and is ready to begin learning how to use it responsibly.
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Decide how much to give. An allowance is typically considered to be an amount that is in addition to any that you spend on the child’s necessities. For this reason, there’s no strict guideline regarding what to give. It doesn’t have to be a large amount; even a small allowance can be used to teach your child the value of money, and will be appreciated.
- Many experts say a rule of thumb is between $0.50 and $1 for each year on the child’s age. For instance, a 10-year old could receive between $5.00 and $10, while an 11-year old could receive between $5.50 and $11.^{[3]XResearch source}^{[4]XResearch source}
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Many feel that a weekly allowance payment is convenient.^{[5]XResearch source} However, a monthly allowance payment has its own advantages; it will teach children the importance of budgeting and making money last, since they will have to wait longer for each allowance payment.^{[6]XResearch source} Whatever allowance schedule you decide on, be consistent and don’t cave in to any requests for more money (unless it is for something essential or very important).
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Open a bank account for your child.^{[7]XResearch source} Once you start giving your child an allowance, you can also help him or her open a bank account as a place to keep some of the money. This is another way to help the child practice money management. It can also be fun to keep up with the account and watch it grow.
- You could encourage your child to put some or all of the allowance in a savings account.^{[8]XResearch source}
- You could even offer to match part of whatever is set aside, as an incentive. For instance, you could tell your child that you will match 50% of the amount from the allowance that is put into savings. If your child puts $10 in savings, you will contribute 50% more ($5), so that $15 total can be put in savings.
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Part 2

Part 2 of 3:

Setting Guidelines

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Decide if you want to have the allowance be dependent upon chores.^{[9]XResearch source}^{[10]XResearch source}^{[11]XResearch source} Some parents think it is important to give a child an allowance only of the condition that chores like making the bed, cleaning the dinner table, taking out the trash, etc. are completed. Others think that a child’s allowance should be independent of any required chores. Ultimately, you will have to decide what to do as a parent, and there are several things to consider:
- You may want your child to understand the relationship between work and pay.
- You may want your child to have a sense of responsibility and complete chores without any payment or other incentive.
- You may want your child’s allowance to be a gift from you that does not depend on anything else.
- Another approach is to give your child a base allowance, and then the opportunity to earn more by doing chores.^{[12]XResearch source}
- If you do choose to relate your child’s allowance to chores, be consistent with the rule.
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Consider tying an allowance to school performance.^{[13]XResearch source} The considerations for this approach are very similar to those you must weigh when deciding whether or not to relate your child’s allowance and responsibility for chores.
- You may want to treat the allowance as a reward for when your child does well in school.
- You may want your child to be self-motivated and strive hard in school without having to use an allowance as an incentive.
- In the event that your child works hard but doesn’t do well, you may not want to “punish” them for trying by taking away the allowance.
- Instead of tying an allowance to academic performance, you could also take your child out to eat at a favorite restaurant (or provide some other treat) as a reward for doing well at school.
- If you do choose to relate your child’s allowance to academic performance, be consistent.
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Set guidelines for how the allowance can be used.^{[14]XResearch source}^{[15]XResearch source} To teach your child the value of money, you will want to monitor how he or she spends the allowance, but don’t dictate the spending.
- You might ask your child to use some of the allowance to purchase clothing, school supplies, or something else useful (rather than spending it all on entertainment). This will teach your child the basics of budgeting.
- Encourage your child to think about using the allowance for a long-term goal.^{[16]XResearch source} While “long-term” might mean something different to a child than an adult, you will still help yours by teaching him or her to think ahead. For instance, you can suggest that your child sets aside $5 at a time over a few months to help save up for a new bike.
- You could continue to encourage your child to put some or all of the allowance in a savings account.
- You might also encourage your child to donate part of the allowance to a charity or other valued cause, or at least to make occasional donations.
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Let your child make mistakes.^{[17]XResearch source} You may be tempted to give your two cents on everything your child wants to spend the allowance on. However, experts suggest that you should generally let children their own make decisions about how to use an allowance.
- Let your child make impulse buys, run out of money, purchase something that you know will fall apart, etc.^{[18]XResearch source}
- Be consistent and say no if your child wants more money after spending all of the allowance (except for necessities or emergencies).
- Eventually (and with your patient advice) your child will learn for himself or herself how to budget, how to buy for quality, and other important lessons.
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Part 3

Part 3 of 3:

Reviewing

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Evaluate the allowance periodically.^{[19]XResearch source} Every so often, consider the amount of the allowance you provide against your child’s age, needs, and level of responsibility. If possible, let the allowance grow with your child by increasing it every year (or at some other interval).^{[20]XResearch source}
- Typically, as a child grows up, his or her needs and desires will grow as well, and so increasing the allowance makes sense.
- However, you should also consider how responsible your child is; if he or she can manage money well, increasing the allowance might provide opportunities to show even more responsibility. Likewise, if your child needs more time to learn the value of money, you might hold off on increasing the allowance.
^{[21]XResearch source} If you are unable to raise an allowance, or must reduce it due to a financial hardship or your own budgeting needs, take the time to talk about this with your child. Use the situation as a lesson, and explain that you are trying to manage the family’s budget. Your child will appreciate if you talk about what is going on.
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Create an allowance contract. When your child is old enough, consider drafting an allowance contract—a simple document that explains the terms of the allowance. Though this might seem unnecessarily formal, it is a way to teach your child (especially a teen) about making agreements and sticking to goals. The allowance contract can include:
- How much the allowance will be
- How often the allowance will be paid
- Any particular conditions for receiving the allowance (chores, school performance, etc.)
- Any notes about how the allowance can be used (for example: no more than 25% on clothing, 15% devoted to savings, 10% set aside for a special goal)
- Signatures from the parent and child/teen
- A note about how often the contract will be reviewed (monthly, biannually, etc.)
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