01 December 2012
Should You Give Your Child an Allowance? How Much Is Enough?

Most parents who give their children an allowance believe that it teaches financial literacy – an understanding of how money works. An allowance can teach budgeting skills, the relationship between work and reward, and even the importance of saving for a big purchase. Starting at about age 5, children can begin to learn about money – how to earn it, spend it, save it, and even invest it.

Whether to give the kids an allowance is a decision each family must make. If you do decide to give your children an allowance, it can be structured to teach your children the values most important to you.

Create the Allowance That Works Best For Your Family

1. Create a fee system. Children receive a small base allowance and additional payments for chores like trimming the hedge, mowing the lawn, or babysitting younger siblings.

2. Give structured allowances. A structured allowance teaches youngsters basic money management skills. The child still chooses how allowance money is spent, but parents provide lessons in financial literacy that can last a lifetime. For example, one-third of the allowance can be spent any way the child chooses, one-third must be put away for a large purchase the young saver wants to buy (short-term goal), and one-third is put into the child’s college fund (long-term goal).

This turns an allowance into a lesson in money management and the importance of savings. The child still has money to enjoy during the week, but also sees the longer-term benefits of saving for the future.

3. Subtract money from the week’s allowance for childhood infractions, demonstrating that actions have consequences – and not always happy consequences.  Your oldest didn’t mow the lawn? A dollar or two is withheld from that week’s usual allowance amount. It’s a great learning tool, especially for children who neglect routine, assigned chores.

How Much Should I Give My Child Each Week?

Some financial and child-rearing experts suggest using the “age method” to determine just how much allowance a child should receive. A 5-year-old receives $5 a week; a 10-year-old receives $10 a week, etc.

Other parents, who choose to teach children the value of work, use the previously-mentioned fee system, paying the child for the chores the child undertakes each week. If the lawn is mowed that week, the child receives more, correlating the relationship between work and earnings.

Teach Your Children to Save

Financial literacy may be a difficult lesson for children to learn. Kids want to buy desired items now, and learning to save for the future is hard when the future seems so far away.

Open a savings account at your local bank for your child beginning at age 5. As children become better at arithmetic, review monthly statements to demonstrate the advantages of saving. Describe interest earnings and accumulation of a “nest egg” at an early age to teach children the value of money, hard work, and saving for the future.

Talk to a bank representative about teaching money management skills, and how your bank can help with this important, life-long lesson.  It’s never too early to learn to manage money, and your local bank is the best place to start the learning process.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.


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