By the time your kids are ready to enter kindergarten at age five or six, chances are theyve surmised that the things they want cost money. Most financial and parenting experts agree that this is the right time to start giving your children an allowance. An allowance can be a great way to teach your kids valuable lessons about money management, a healthy work ethic and responsibility. But determining how much to give them – and the conditions for giving them an allowance in the first place – can be a headache. Asking these five questions will help you manage the allowance process effectively, and encourage your kids to have a positive relationship with money.
- How much allowance should I give them? A common formula is to match your childs age in dollars – i.e., six dollars for a six-year-old. In order to teach your kids about delayed gratification, its best to keep the amount relatively modest; this way, theyll have to save up over time in order to afford larger purchases. Other factors to consider are how much allowance their friends at school are getting, and what their allowance is supposed to cover. In most families, kids are expected to use their allowance money on incidental purchases. While most kindergarteners will only want to buy candy or toys, in a few years theyll start to want money for clothes, movie tickets and eating out. If theyre expected to cover these expenses exclusively with their allowance, youll probably have to start paying them more.
- How often should I pay them an allowance? Most experts agree that you should pay your kids every week, since young children can only comprehend time in small increments. Just make sure you do it consistently. Forgetting to pay them every week can make them insecure, while paying them more frequently (or whenever they ask for it) can lead to entitlement. As your children approach adolescence, you may want to start paying them every two weeks or even once a month. This will help prepare them for the real world, where paychecks tend to come every other week and bills come once a month. Increasing the amount of time between allowance payments also teaches your children to make their money last. If they blow through their allowance as soon as they receive it, waiting up to an entire month for the next payday can feel like an eternity.
- Should they have to work for their allowance? Modern parents are often split into two camps on this one. Those who believe that kids should have to do chores for their allowance argue that if you simply give your child money, theyll become spoiled and entitled. By requiring them to earn their allowance, youre teaching them a valuable life lesson: If you want to get paid, you have to work. Parents in the opposing camp are quick to point out that an allowance in exchange for chores sends kids a message that they should only contribute around the house if theres money on the line. Even worse, your children might decide that its worth missing a few weeks of allowance to avoid taking out the trash, washing the dishes or cleaning their room. A third option is a compromise between the two. In this model, your children receive a base allowance with no strings attached, although theyre expected to do basic chores around the house for free – just like mom and dad. (If they fail to perform these chores, they will be punished – although they will still receive their allowance in full.) However, they have the option of doing additional chores for additional pay – like washing the family car or mowing the lawn. This way, youll encourage them to work for pay without giving them the option of skipping out on their basic responsibilities.
- How do I get them to manage their money? Since one of the primary purposes of an allowance is to teach your kids about managing money, youll need to set some rules for spending and saving. The three jars approach is an easy way to accomplish this. Get three mason jars for each child, and label them as follows: Spend, Save and Give. When you give your children their allowance, explain that they cant spend all of it – they have to set aside a certain amount for the Save jar and a certain amount for the Give jar. How much they need to save and set aside for giving is up to you, but we recommend allotting at least 20 percent to savings. When your kids are young, the Save jar should be used for short-term goals – like buying a Lego set that costs a few weeks or months worth of allowance. As they get older, you may want to encourage them to start saving for longer-term goals like a car or their college education. Meanwhile, the money they put in the Give jar can be donated to your local house of worship or to the charity of their choice. Wherever it ends up going, your kids will learn the joy and value of giving to those in need.
- When should I stop giving them an allowance? Most financial experts agree that once your kids are old enough to take a part-time job (usually by the time theyre in their early teens), you can begin to reduce their allowance. Depending on how much theyre making, you may be able to eliminate it entirely. But just because youre no longer giving them an allowance doesnt mean you should stop giving them financial advice. If your kids find that theyre running out of money, explain to them that they still have plenty of options – such as reducing their spending or working more hours over the summer.