Part of teaching your kids to be more independent is giving them money as part of an allowance. It can be an exciting time for your child — remember when you first got your hands on some cash? It can also be fraught with some bumps along the way as your child learns sound money management skills.
That’s not to say it’s not worth it. Rather, deciding on how to give them money and helping them budget their allowance can take time, but your kids will thank you for it. Read on for ways that you may handle this part of parenthood and help your child build financial literacy.
What Is an Allowance?
An allowance for kids is a predetermined amount of money you give them on a consistent basis, most commonly on a weekly or monthly cadence. You can choose to have your child earn their allowance by completing chores or “jobs” or do none at all. The idea is that with an allowance, your child can learn the value of work (if you have them do chores), gain experience handling money, and learn responsibility.
The decision to give an allowance is up to the family. The same holds true regarding whether the allowance is earned by completing chores. Depending on the age, some parents may feel more comfortable with giving their kids cash. Some may feel older kids can handle their own debit card and a children’s checking account — with some limits, of course.
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Types of Allowances
The type of allowance you give your child is based on your preferences, what you want your child to learn, and their needs. Here are some options for how an allowance can work.
Chore-Based Allowance
The chore-based allowance tends to be the most common, where a child is given some household tasks and offered a certain amount once these tasks are complete.
• Tasks typically will depend on your child’s age and their readiness to handle certain types of responsibilities.
• It can be wise to assign tasks your child can realistically accomplish so that they don’t wind up feeling discouraged.
For example, say your nine-year-old wants to start doing chores regularly to receive allowance money, which they plan to save up to buy a new science kit. Based on what they’ve demonstrated to you in the past, you believe they’re able to load the dishwasher and help put the laundry away. You discuss this with your child, and you both agree that you’ll give them a weekly allowance if they complete all their assigned chores.
Pure Allowance
Some parents would rather teach their child money management skills without connecting this to some sort of labor. Instead of asking your child to complete chores, parents agree to give them an allowance — typically a consistent amount in cash or perhaps put on a debit card connected to a bank account. While your child may still do chores around the house, the allowance isn’t contingent upon its completion.
Hybrid Approach to Allowance
Parents who want to teach their kids about reaching a goal (and also how money is tied to work) can take the hybrid approach. Here, you’ll give your child a regular allowance that isn’t contingent on any chores. However, you give them an opportunity to earn more money by taking on extra chores around the house. In that way, they’d get more experience in allowance management.
• For example, your child receives $5 a week, but they want to earn more so they can head to the local arcade for their friend’s birthday party or see their savings grow.
• Based on their age and ability, you have them do a chore or two (pulling weeds in the yard or taking out garbage). Once the tasks are complete, you give your child the amount you agreed upon.
How Much Allowance Should You Give Out?
The amount you should give your child will depend on several factors. Ultimately, it will depend on your budget and what you can afford to give your child. One popular formula is to give a child $1 or $2 per week for every year of age, which would mean $8 or $16 for an eight-year-old and $16 or $32 for a 16-year-old.
You might consider not just the age of your child but also how challenging or time-consuming the task is. A couple of other pointers:
• If you’re unsure what’s a good amount, you can ask some of your trusted parent friends or family members about what they’re giving their child.
• If your child reaches the age where they can get a part-time job, you may even consider lowering the amount or not giving an allowance at all since they can earn their own pocket money.
Whatever the amount you choose to give, make sure you set clear expectations. This means spelling out the chores in detail (is the child making their bed every day or just on weekdays, for instance?). It also means determining how much money will be paid, when, and how, as well as what (if anything) they will receive if a task is not fully completed. This can result in headaches down the road.
Advantages of Giving an Allowance
There are plenty of upsides to giving an allowance. Consider the following:
Teaching Money Management
Giving an allowance, whether tied to chores or now, gives your child an opportunity to understand how money works. Plus, it can teach them that the items they want to purchase or activities they want to do cost money. It gives them hands-on experience earning, saving, and spending, providing a valuable lesson in money management for kids.
They’ll learn about what it takes to purchase something, such as looking at price tags in the store.
• To go a step further, you can even teach the concept of saving and investing money and why that can help them as well.
• If you open a children’s or teen’s bank account for your child’s allowance money, that will teach valuable basic banking and financial literacy skills too. They might see how interest compounds and grows their savings, for instance.
• The same holds true if they get a debit card (typically one where you can view and possibly approve their spending).
Teaching Responsibility
An allowance can teach your child what it means to be responsible with money. They can learn not to spend their earnings on snacks if they’re saving for, say, a video game. They can learn to safely store their funds, be patient until their next paycheck rolls around, and earn extra money if they’re eager to accumulate a certain amount.
Building Confidence
Giving kids an allowance can help boost their confidence because it can show them you believe they’re ready to earn and manage their own money. They may also feel proud of their ability to make cash and spend it as they see fit, whether that means buying themselves new clothes or making a donation to a favorite charity.
Creating a Safe Space to Learn
Instead of having kids learn about money and other types of responsibilities when they’re grown, giving an allowance can give them a bit of a head start. You can help guide them to make their own decisions, which can include making money mistakes without huge consequences. Any errors they make can be an opportunity for you to teach your kid about what they can do differently next time.
Recommended: Guide to Opening a Bank Account for a Minor
The Takeaway
If you choose to give your child an allowance, whether it depends on chores or not, it can be a good way for them to learn how to manage a bit of money responsibly. You might have them work for the money, not work at all, or have them earn a bonus for doing additional chores.
Whatever amount you give, showing your child how to save their money in a savings account is a great teaching opportunity.
Currently SoFi Bank does not offer accounts to minors. But while you’re thinking about money management, why not take a fresh look at your own banking needs?
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FAQ
What is a fair allowance for kids?
A fair allowance for kids should be based on age and what you feel is appropriate. Many parents provide $1 or $2 per week for each year of the child’s age (meaning, if a child is 10, they get $10 or $20 per week). You might survey other parents in your circle and see what they give their kids as a way of coming up with a ballpark figure.
Are allowances bad for kids?
In most cases, allowances can have several advantages for kids, such as learning how to handle money and becoming more responsible. However, some parents may believe that allowances aren’t appropriate and should in no way feel obligated to give one.
How do parents give allowance?
Parents can give an allowance in a weekly, biweekly, or monthly cadence (or whatever other frequency suits them). They can also give a consistent amount or vary it depending upon tasks completed. In addition, an allowance can be paid as cash, on a debit card for older kids, or deposited into children’s bank account or an account that their parent holds for them.
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