Starting an Allowance

What’s the right amount for a child’s allowance? It depends on the child.

I was rather startled to read on several parenting websites that the “standard” allowance these days is considered to be $1 = 1 year of age. Seriously?  That means a five-year-old gets to spend $5 per week and a nine-year-old is regularly spending $9 on candy or (more likely) iphone apps.

I can’t imagine giving a child that much discretionary income.  I rarely spend that much on myself in a month.  OK, I realize we live in the far, frozen north, but even adjusted for big city prices, it seems to be a heavy emphasis on buying-buying-buying.  I want to teach my children money management, not how to be constant consumers.

First, a few things about allowances.

An allowance is given to teach a child about money.  It should be separate from chores.  Pitching in at home is part of being a family.  It should not be “paid” for.  Some families like to offer money for extra big, once-in-awhile tasks as a way for a child to earn some money; that’s fine.  A regular weekly allowance is intended to allow a child to make decisions on a few age-appropriate purchases.

An allowance should start when a child expresses interest.  For some kids, that’s early.  My brother always wanted to buy trading cards and bubblegum at age 3, so he started young with a dime allowance.  When it was gone it was gone.  For kids who don’t care much about money, anytime in elementary school is a good time to start.

Set an amount that fulfills some of their wishes.  Children’s movies in our town are 25c.  That’s unusual, but think about the top 3 small things your child would like to buy.  How much do they cost?  Set the allowance in that range.  Maybe it’s enough to buy a special drink once a week, or the price of sheet of stickers.  Think small.

Set an amount that requires thinking and restraint.  Contrary to the dollar-a-year guidelines, I started my oldest at 25 cents.  He goes weeks without spending anything and sometimes has to save up.  So far his only spending interests are popcorn and ice cream from the ice cream truck.  School popcorn is 25c.  Ice cream bars are $1 +.  He’s decided weekly popcorn isn’t a wise use, but saving up for the ice cream truck is.

Don’t go overboard with younger siblings.  We give my four-year-old a penny.  He plays with pennies as toys – rolling them, making them into pirate treasure.  No use giving him anymore until he understands the power of buying something and the ability to keep it safe. But he likes his penny – it makes him feel as if he’s getting an allowance, just like his big brother.

Impulse control, decision-making, delayed gratification – these are all skills kids can learn (and make mistakes from) with their money.  As our kids grow, we’ll increase their allowance, but always keep it moderate.  I’ll write about kids and bank accounts, and ways to learn about big purchases, long-term savings and charitable giving in a future post.  Look for it!

What do you think?  Is a $1 / age allowance a good idea in today’s economy?  What do kids spend it on?  What kinds of things did you spend your allowance on as a kid? Should we give kids an allowance that exceeds their needs, meets their needs or meets some of their spending needs (wishes)?

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7 Responses to Starting an Allowance

  1. Emily Plank says:

    Hi Heather,

    I love this post! I just finished reading “First National Bank of Dad” (which I have to say, I almost didn’t buy because I was offended by the bias communicated through the title…but it was highly recommended from other like-minded parents). It was a good read, and recommends the same thing you’re suggesting. It also recommends paying interest, which I thought was a very compelling idea – interest to encourage savings, and teach the actual workings behind the financial system. Anyway, thank you!

    Best, Emily

    • Heather Shumaker says:

      Thanks for your thoughts, Emily. Parents are a child’s first experience with money and banking. I hadn’t thought of paying interest – my 8-year-old has a bank account that’s supposed to teach that – but the rates are so dismally low right now that the idea of interest barely adds up.

  2. Heather – “I want to teach my children money management, not how to be constant consumers.” I absolutely love your take on this.

    And the fact that, “An allowance is given to teach a child about money. It should be separate from chores.” yes, Yes, YES!

  3. I agree with allowances not being tied to chores. Amounts and when to start giving kids allowances should be on an individual basis and like you said, tailored to where you live.

    The only constant there should be is some sort of savings component that teaches delayed gratification and working toward long term goals. I also think paying interest is a great idea.

    However, interest rates are so incredibly, artificially low that showing a child his ten dollars in a savings account earned a whopping 0.04% last year, which translates to less than one cent, might be so depressing that he/she decides to heck with saving a blows it all on video games or energy drinks.

    • Heather Shumaker says:

      I hear you…interest rates are so low they can be meaningless to kids. I think that’s why some parents act as they “bank” themselves and offer a decent savings interest rate so the kids get it. Good point indeed.