To Pay or Not To Pay? Kids and Allowance

What are your thoughts on allowance?

Gina, San Francisco Bay Area

I hear variations of this question all the time. Are allowances a good idea? Should they be tied to chores? How much? When should you start?

Parents hear all sorts of conflicting information on kids and allowance. Since there is no research on the subject, I advocate a practical approach that reinforces important life lessons for our kids.

Teaching Share, Save, Spend

If you can afford it, I think allowances are a good idea because they help children and teens develop money-management skills. A colleague and good friend of mine, Nathan Dungan, specializes in helping families and kids build healthy financial habits. His approach has three simple ingredients: Share, Save, Spend. Sharing is a potent antidote to the cultural messages that promote a "me first" attitude. Saving teaches discipline, patience, and planning. Spending is of course the fun and easy part as long we know how to budget. Allowances enable kids to start practicing the Share, Save, and Spend philosophy early on, helping build a foundation for financial literacy later in life.

When should we start? How much?

Around the time that they start school, children usually start to understand the concept of money. Of course, how much depends upon a lot on your family budget. Small amounts are just fine. Even if we can afford it, the goal isn't to make our kids' money life a sky's the limit fiscal operation. My wife Monica and I always gave an allowance equal to half of our kids' ages until they hit adolescence and then we gave an amount equal to their age. Weekly allowance made it a little easier for them to learn to budget than a monthly allowance.

Taming the "Gimmes"

Allowances also eliminate the problem of kids treating you like cash machines! An allowance can be a tool for "taming the gimmes" if you stick with your message. You might choose to cover the basics like food and clothing but allowances can take care of treats, games, toys, and other wants. 

There is nothing wrong with chores

Tying allowance to chores is a great way to instill a sense of responsibility. While some folks argue against this, I can't figure out why it is any worse than handing over the money for nothing. Paying kids for chores doesn't need to undermine the idea that everyone pitches in to help around the household. While there may be a clear list of chores tied to a weekly allowance, this doesn't let kids off the hook for other projects and general helpfulness.

If you find yourself getting into a power struggle, check out our post on Chores and Kids.

Do you give allowance to your kids? Why or why not?

Dr. Dave