Allowances can be difficult for parents.

Should you give an allowance?
If so, how much allowance should you give?
Should the allowance be tied to doing chores around the house?
What do you do when your kid wants more allowance?

These are just a few of the questions that you can find the answers to in the articles below.

Some of our very best articles on allowances are:

Make Kids Negotiate for a Bigger Allowance

Kid negotiate allowance

My ten-year-old thanked me for making him read the American Girl: Smart Girl’s Guide to Money the other day. I thought it was weird because he had read it last year. I only made him read it because he needed a “free read” for school at home and rejected so many of our other books. Even though it’s a book geared towards teenage girls, a 9-year-old boy can find value in it.

I probed deeper to find out why this is interesting now. It turns out that one of his school friends gets $12 a week for allowance. My ten-year-old only gets $5/week. This friend travels all the time – she spends more time at Disney World than Mickey Mouse. She has many opportunities to buy from gift shops where my son doesn’t.

My son remembered that the American Girl book wrote that asking your parents for a bigger allowance was fair. He knew that it was wise to mention her as a comparison. He wasn’t whining but just making a logical argument.

I said, “So you want to negotiate a bigger allowance? Let’s talk about it.”

One of the best parenting books about money is The Banks of Dad (Review). In that book, author David Owen suggests that the kids should apply for it in writing.

That’s exactly what I asked my son to do.

I’ve seen him write a few dozen sentences in a school paper on some fictional adventure. However, when it came to this – something that might impact him more – he mustered three sentences. They weren’t persuasive at all. He said that he’d do his summer reading. That’s no big deal. He’s supposed to do that. He even forgot to mention his friend’s allowance in the paper.

The sentence about doing his summer reading gave me an idea. His school gave summer reading “suggestions” – award-winning books in the last year. However, they wrote that anything that seemed interesting was fine.

So I thought, “He had a positive experience reading a money book. What if I give him a fun one that covers a little more? Better yet, I’ll create a whole ‘Fun Kid Personal Finance Course'”

  • Grandpa’s Fortune Fables (Review)

    I decided he could earn one dollar a week by reading Grandpa’s Fortune Fables and completing the code at the end of every chapter. Unfortunately, the code is like Wheel of Fortune, and he was able to complete it by the fifth chapter. I had to explain that finishing the book was the requirement – not the code itself.

    He read it in a couple of days.

  • Complete the Money Time Kids Course

    I reviewed MoneyTime in the past. In fact, my son, who was eight at the time, gave it a test drive. The course was designed for 10-14-year-olds, so it was challenging. He got through a few topics, and I got enough detail for my review, so we moved on.

    MoneyTime has a total of nine topics. I decided he could earn a quarter for each “topic” in the course for a total possible earnings of $2.25. I only asked him to do the ones he hadn’t done before, but he misread my instructions and did them again, so it was reasonable to adjust my system to include that.

    He got through three topics fairly quickly. It will be a little slower now that he’s back in camp. One benefit of this approach is that he’ll find the time if interested.

  • Watch Warren Buffett’s Secret Millionaire’s Club

    I wanted him to learn entrepreneurialism. One of the best ways to learn about money is through television. Warren Buffett’s Secret Millionaire’s Club is a cartoon that is a perfect fit for both.

    My other requirement was that after watching all the episodes, he would have to write a paper about what he’s learned.

    My 9-year-old is now interested in negotiating an allowance. I want to sync them up, so they can watch this together and write a better paper together. I don’t know about this one because the writing ability of a pre-fourth grader is different than a pre-fifth grader.

He can earn $4.25 in allowance from these tasks, bringing him to $9.25/week. It’s less than his peer’s $12/week, but he could get more than he asked for because of…

Allowance Bonus: Compound Interest

After completing all the previous tasks, he unlocks a special bonus. By now, he should know the power of compound interest. Using the concept in The Bank of Dad, I’m going to pay him 1% a week. This is around a 68% annual interest rate. When he has $50 saved and gets an extra 50 cents each week for doing nothing, it’s similar to earning $9.75 a week in allowance.

It will cost me a few extra dollars each week – more than $200 a year with the compound interest bonus. Between the two kids, it might cost me more than $500. They’ll make money mistakes and they will learn.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

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How can I teach my kid to save and budget with their allowance

Do you want to teach your kid the noble art of saving and budgeting using their allowance as a superpower? To add a little spice we’ll cover it super-hero style. Maybe you can use some of it to inspire your little one.

Why It’s Important

  • Money Magic: Learning to manage money is like discovering the ultimate magic trick. You want them to be the next Houdini, not the disappearing dollar kind.
  • Avoiding Future Money Fails: Teach them now, so they don’t become the “broke magician” in their adult years. Financial magic wands won’t cut it.

Getting the Ball Rolling

  • Allowance Avenue: Start with a regular allowance. It’s their superhero suit, and it comes with responsibilities.
  • Budget Sidekick: Teach them the mighty power of budgeting. Create spending categories for their allowance. It’s like having different gadgets on a superhero utility belt.

The Thrilling Adventure of Saving

  • Super Savings Goals: Help them set saving goals. Want a new video game or a sparkly unicorn toy? It’s their treasure to hunt.
  • Saving Stash: Get them a cool piggy bank or a savings jar. It’s like their secret lair to stash their savings, away from pesky villains (aka spending temptations).

Budgeting for Justice

  • Needs vs. Wants: Teach them the superhero skill of distinguishing between needs (homework supplies) and wants (that giant ice cream sundae).
  • Spending Leagues: Create envelopes or jars for different spending categories. When the cash runs out, it’s mission accomplished. They’ll feel like true budgeting superheroes.

Sharing Is Their Superpower

  • Super Givers: Encourage them to share a part of their allowance with a cause they care about. They’ll be like Robin Hood but without the tights.
  • Feel-Good Vibes: Show them that giving is like a superpower that makes the world a better place. Who doesn’t want to be a hero?

And there you have it, the ultimate guide to teaching your child to save and budget using their allowance as a tool. Remember, every superhero has to start somewhere, and your little financial avenger is no exception!

For more fantastic tips and tricks on kids’ allowances and financial education, check out our resource.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

If you enjoyed this article please Support Kid Wealth

Should allowances be tied to chores or responsibilities?

Should allowances be tied to chores or responsibilities is an age-old debate. There are three schools of thoughts.

Allowances Tied to Chores:

  • The Basic Job Contract: Some parents treat allowances like a job contract. You do your chores, you get paid. Simple, right?
  • Teaches Work Ethic: It’s a great way to instill the value of hard work and earning money. Kids learn that money doesn’t grow on trees; it comes from effort.
  • Motivation Factor: When there’s a financial reward involved, kids may be more motivated to complete their tasks. It’s like a little monetary pat on the back.

Allowances Tied to Responsibilities:

  • Part of Being a Family: Some parents argue that chores should be done simply because you’re part of the family, not because you get paid. After all, you don’t get paid for breathing, right?
  • Life Skills: Pitching in with responsibilities teaches kids valuable life skills like cooking, cleaning, and teamwork. It’s like giving them a head start on adulting.
  • No “Chore Negotiation” Drama: When allowances aren’t tied to chores, there’s less room for haggling or complaining. It’s all about pitching in and sharing the load.

The Middle Ground:

  • Hybrid Approach: You can always strike a balance. Give a base allowance for being part of the family and contributing, but offer extra cash for additional chores.
  • Financial Education: Use allowances as a way to teach financial responsibility. Encourage kids to save a portion, share a portion (for charity, for example), and spend a portion.

Ultimately, there’s no one-size-fits-all answer. It depends on your family’s values and what you’re comfortable with. So, don’t be afraid to mix and match or adapt your approach as your kids grow and their needs change.

For more in-depth advice on allowances and parenting, check out How To Give Your Child an Allowance. And for a broader perspective on the topic, explore our other Allowance advice.

Remember, every family is unique, and the best allowance system is the one that works for you and your kids. Happy parenting!

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

If you enjoyed this article please Support Kid Wealth

The Benefits of Giving Kids an Allowance: Teaching Financial Responsibility from an Early Age

benefits kids allowance
Image Source: Pexels

In this day and age of instant gratification and easy access to credit, it may seem old-fashioned to give kids an allowance. However, educators, counselors, and economists agree that an allowance can be a valuable tool for teaching children about money and financial responsibility. Not only does it provide them with firsthand experience in managing money, but it also helps build a sense of trust and responsibility within the family. If you’re considering giving your kids an allowance, here are some dos and don’ts to keep in mind.

Have a Plan: Setting Clear Expectations

Before you start giving your children an allowance, it’s important to have a plan in place. This means thinking through your stipend strategy and setting clear expectations. Ask yourself why you’re giving them an allowance, how much you’ll give, and how often. Consider whether the allowance is simply a benefit of being a member of the family or if it’s tied to specific responsibilities or achievements. Determine what expenses your kids are expected to cover with their allowance. By having all the details figured out beforehand, you’ll be better prepared to answer any questions your children might have.

“The clearer the deal at the outset, the greater the lesson — and the fewer hassles you’ll have downstream.” – [Reference Article 2]

Money Talks: Communicating the Plan

Once you’ve established your allowance plan, it’s crucial to communicate it effectively to your kids. Take the time to explain the rules, the reasons behind them, and any potential scenarios that might arise. You may even want to write down the plan, sign it together with your children, and display it prominently as a visual reminder. This will ensure that everyone is on the same page regarding the amount, frequency, and purpose of the allowance. Clear communication from the start will lead to smoother implementation and fewer misunderstandings down the line.

“The more often you talk about money with kids, the more knowledge you can equip them with when the time comes for them to manage their finances on their own.” – Investopedia

Teaching Common Cents: Using Allowance as a Learning Tool

One of the main benefits of giving kids an allowance is the opportunity to teach them about the value of money and financial responsibility. Allowing children to manage their own money from an early age can help them develop important skills such as budgeting, saving, and planning for the future. By giving them the freedom to make their own financial decisions, they will learn to be more independent and accountable for their choices. It’s important to let them make mistakes and learn from them, as these experiences will shape their understanding of money management.

“Kids need to handle it themselves, making their own mistakes.” – Great Schools

The Three S’s: Spending, Saving, and Sharing

When implementing an allowance system, it’s beneficial to introduce the concept of the three S’s: spending, saving, and sharing. Teaching kids to allocate their money wisely by spending a portion, saving a portion, and donating a portion fosters a well-rounded understanding of financial management. Encourage your children to think about their financial goals, whether it’s saving for a specific item or contributing to a cause they care about. By instilling these values early on, you are equipping them with lifelong skills that will serve them well in adulthood.

“This is an excellent way to expose them to the three most important things they can do with their money, and it’s a lesson that can last a lifetime.” – Great Schools

Chores and Allowance: To Tie or Not to Tie?

A common debate among parents is whether or not to tie allowance to chores. Some believe that connecting allowance to chores teaches children the value of hard work and responsibility. However, others argue that chores should be seen as a communal effort within the family and that allowance should be a separate entity. Ultimately, the decision is up to you and what works best for your family dynamics. If you choose to tie allowance to chores, be prepared for potential challenges when children don’t complete their assigned tasks. It’s important to strike a balance between teaching responsibility and avoiding a transactional mindset.

“Problems always crop up when — inevitably — kids don’t do the required work around the house.” – Great Schools

Don’t Deny Their Dues: Using Allowance as a Teaching Tool, Not a Punishment

While it may be tempting to withhold allowance as a form of punishment for bad behavior or poor grades, it’s important to resist this urge. The purpose of an allowance is to build trust, improve communication, and foster cooperation within the family. Using allowance as an unexpected disciplinary tool can lead to resentment and a breakdown in trust. Instead, find alternative ways to address behavioral issues while upholding the original agreement. By separating allowance from punishment, you can maintain a positive and constructive approach to teaching financial responsibility.

“No matter how tempting, don’t withhold allowance as punishment for bad behavior or poor grades.” – Great Schools

Show Them the Money: Consistency and Reliability

Consistency is key when giving kids an allowance. Regular and predictable payments help children develop a sense of responsibility and planning for the future. Establish a specific payment schedule and stick to it. Whether it’s weekly, bi-weekly, or monthly, make sure your children can rely on receiving their allowance on time. This consistency builds trust and reduces the temptation to negotiate or haggle. By prioritizing the payment of allowance, you demonstrate the importance of financial commitments and instill a sense of reliability in your children.

“One of the most powerful learning aspects comes from consistency: the regular, expected arrival of funds, on time and every week.” – Great Schools

Starting Early: The Age for Giving an Allowance

The question of when to start giving kids an allowance often arises. While there is no one-size-fits-all answer, many experts agree that children as young as three or four can benefit from a simple and understandable weekly allowance. By the age of five, many children already show an interest in money and understanding how it works. However, the decision ultimately depends on the individual child’s maturity and readiness to handle money responsibly. Pay attention to your child’s curiosity and desire to learn about money, and use your judgment to determine the appropriate age to introduce an allowance.

“By the time they’re 5, many already have started to save.” – Great Schools

Say No to Credit: The Importance of Controlling Spending

In a world of easy access to credit and online transactions, it can be tempting to give kids access to credit or debit cards. However, financial advisors strongly advise against it. It’s important to maintain control over your children’s spending and teach them the value of physical money. By requiring them to come to you for every expense, no matter how small, you instill the idea that spending should be a deliberate and conscious decision. If your children need to make an online purchase, have them reimburse you in cash immediately from their allowance. This way, they learn the importance of responsible spending and avoid developing a reliance on credit.

“You don’t want your young ones getting used to the idea that it’s easy to spend plastic money on the Intertubes.” – Greenlight[Reference Article 3]

The Path to Financial Literacy: A Stepping Stone for Future Success

Once children reach high school or even middle school, an allowance can serve as a stepping stone to more advanced financial concepts. As they grow older, consider opening a bank account with them as the custodian. This introduces them to the world of financial institutions, investing, earning interest, and balancing a checkbook. By having hands-on experience with money management from a young age, children will be better prepared to handle their finances as adults. The lessons learned through an allowance can provide a solid foundation for future financial success.

“Your kids will be far more likely to learn and understand those ideas easily if they’ve been living with the lessons of an allowance all along.” – Greenlight[Reference Article 3]

For more tips about how to handle allowances with your kids, see How To Give Your Child an Allowance and our general Allowance advice.

In conclusion, giving kids an allowance can be a valuable tool for teaching financial responsibility from an early age. By having a plan, communicating effectively, and using the allowance as a learning tool, parents can empower their children to make informed financial decisions. Whether tied to chores or given as a benefit of being part of the family, an allowance provides children with real-life experience in managing money. By emphasizing the three S’s (spending, saving, and sharing) and maintaining consistency and reliability, parents can set their children on a path towards financial literacy and success.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

If you enjoyed this article please Support Kid Wealth

How To Give Your Child An Allowance

How to give your child an allowance? That’s easy, you just hand them money, right?

While the physical act of giving an allowance is easy, there’s more that you may want to think about first.

Should you Give Your Child An Allowance?

There’s no right and wrong answer here. There are many kids who never got an allowance growing up. Many are now parents and say, “Hey, I grew up okay.” There’s nothing wrong with that.

My opinion is that managing money helps your child begin their financial education. They get to start to make choices of what’s important to them. They learn to plan and save for more expensive purchases.

Getting access to money is the first step in their financial journey. I think it’s easier to do it through an allowance, or payment for extra work around the house. Otherwise, they may have to wait until they get a job like a paper route, lawnmowing, or babysitting.

Earning a Basic Allowance

How to Give Child an Allowance

I believe it’s important for kids to understand that they earn the allowance. They have to do some chores around the house. It could be making their beds, doing laundry, cleaning dishes, whatever you feel is most appropriate for their age group.

I believe children should also be given the chance to earn extra money for extra work. In our house, that means cleaning up after the dog or making him breakfast. It isn’t always clear what should count as basic work and what should count as extra work. This is a case where I think you just have to use your best judgment.

How Much Allowance to Give Your Child

The general rule of thumb is that every child should get a weekly allowance equal to their age. My 6 year old would get $6 and my 8-year-old would get $8. When I first read that, it seemed like too much. I cover many of their expenses… why do they need so much money?

However, the $1 a year rule of thumb will make more sense when you read the next section. When you budget that allowance it won’t seem like so much.

Teaching Your Kids to Budgeting Their Allowance

There are three basic things that kids can do with their money. They can give it to someone in need. They can save it for something in the future. Finally, they can spend it.

Many people get physical jars of Give, Save, and Spend so that the allowance can be divided out.

1. Give

I believe it’s important to start with the amount of money to give. As parents we don’t focus on giving. However, we have to cover basic needs like housing, transportation, and food. We also have to pay taxes. Kids have life good. They don’t have to pay any of those.

They can afford to give money. I think it’s valuable to get them thinking about others who are less fortunate, especially if they are as fortunate as my kids are.

The rule of thumb is to put one-third of the money in a giving jar.

2. Save

My favorite jar is the saving jar. I’ve always been the type to save my Halloween candy for a rainy day. The comfort of having those “savings” meant a lot to me.

Saving money is important in three ways. A child can learn that they can save money for something extra special. A child doesn’t necessarily need an emergency fund, but saving lays the early groundwork for that. Finally, savings are necessary to take the critical step towards building wealth: investing.

3. Spend

Spending is very important. Children can learn a lot by spending money. They may even learn more when they make “mistakes” or realize that maybe they should have spent differently.

Give, save, spend… you have noticed that the math is easy – simply divide the allowance by three. If it doesn’t divide easily, I’d put the extra dollar in the saving jar.

When Should Give Your Child An Allowance

If there’s one theme to remember with everything when it comes to allowances, it’s that there are no firm rules. My 6 and 8-year-old don’t get an allowance yet. It’s not that they don’t deserve one or that we don’t believe they should get one. We’re simply very busy with a lot of other activities between karate, Boy Scouts, archery, and homework. The days go by so fast that we never get to everything.

I hope to get them started on an allowance in the next couple of weeks. I want to have a plan of standard chores and bonus chores. I’m also looking at getting this spend, save, give jar. We might also make due with a few mason jars and some rubber bands to hold them together.

Final Allowance Thoughts

Much of this article is based on my gut and only a little quick research into the best way to give a child an allowance. Like everything in parenting, I’m learning as I go. I’m sure there are more than a few things that I haven’t thought of. If you happen to have more experience or even different gut feelings, I’d appreciate it if you drop me a line in the comments.

Brian MacFarland has reached more than 10 million people on his personal finance journey to financial independence.  He’s been featured in the Washington Post, U.S. News and World Report, and Lifehacker.

Read more on the About page.

If you enjoyed this article please Support Kid Wealth