The topic of a child receiving an allowance is one of constant debate at kitchen tables across the country. Many feel that the kids should “earn” the money they receive, while some feel chores at home are part of being a family member and are not things they should not be paid to do. Lastly, many feel it is not necessary to give kids an allowance, as their needs and wants are “taken care of” by Mom and Dad.
Whichever way you lean, here are some thoughts as you consider your position. Keep in mind that although these are strategies that have proven effective for many, you may need to modify them to suit your personal situation.
Today, many kids don’t even have a chance to manage money until they are out of high school. Their parents very generously, provide for them right up until graduation day; then they send them off to college with a credit/debit card and are amazed at the poor money decisions their college freshman has made in such a short time!
This should not be a surprise. When anyone is given a new responsibility, they are bound to make mistakes and wrong choices. Why not start the learning process earlier so the mistakes aren’t as big and your children can build confidence to face financial situations on their own?
When, how much, and for how long?
The best time to start the “allowance discussion” is when your children start being interested in the concept of money. A great opportunity is when they ask about it at the checkout line or take an interest in those coins and dollar bills, which may begin when they enter kindergarten or even sooner. The amount of allowance should be reviewed annually and generally stops or is reduced when they are old enough to earn some of their money (i.e., babysitting, shoveling the neighbor’s walkway, dog-walking).
There are many opinions for how much to give in an allowance. Some parents decide to pay a dollar for each year of age and some try to tie it to a chore list.
The goal of an allowance should be to teach your child about money management. If the allowance is tied to chores, you might be paying for things you feel your children should be doing anyway as members of the family. Additionally, there are times your children won’t feel they need any money and may neglect their duties as a result.
The Actual Dollars Spent (ADS) method
I have tried both of the above methods and actually find the “Actual Dollars Spent” (ADS) method works best. It works like this:
Calculate how much you spend on your child’s discretionary “stuff” – toys, video games, cell phone/data, or gas money. These are things that are purchased or given to them, just because – things that are not gifts or necessities.
Take an average of the cost of these items and determine how much that would be per week.
Discuss the list and the allowance with your children. Let them know that, going forward, these “discretionary things” are their responsibility and they can buy them with some of the money from their allowance.
Discuss that they need to split their allowance into savings, charity and spending “buckets.”
Pay them their allowance once a week and pay on time!
This discussion will also eliminate the toy aisle confrontations and the unpleasant data/phone bill surprises. More importantly, it now empowers your child with the responsibility of making good choices with their money. You will be there to guide them.
Results achieved with ADS method:
- Consistent but limited amount of income.
- Helps your child determine spending priorities and builds their financial confidence.
- Let’s them realize that being a member of the family is not about being paid.
- Chores are now tied to privileges and not a dollar amount – no more negotiations!
- Challenges your child to look for other means of earning money if they want to increase their income.
- Reduces the need for “Instant gratification.”
- Finally, now the allowance is an objective (as opposed to a subjective) issue. Everyone knows the rules!