April is Financial Literacy Month, and this is a great time to delve into the issue of allowances. Sooner or later, every parent must grapple with questions such as, “Should my child receive an allowance?” “How much money is the right amount for an allowance?” and “Should his or her allowance be tied to household or family chores?” There is no “one-size-fits-all” strategy for allowance, just like most dilemmas that parents are faced with when raising their children. What’s right for you, your child and your family may be quite different than what’s right for the family next door or across the street.
It may be helpful to consider what parenting experts have to say on this issue in order to make an informed decision about which approach you can take when it comes to allowances. Here are a few important points that I have gleaned from the experts, and perhaps these tips and strategies can help you make the right choices for your family.
Let’s begin with an important question that many parents have about allowances. At what age should children start receiving allowances? Experts say, and I would agree, that children should be old enough to count money prior to receiving an allowance. Some suggest that age 10 is a good starting point, as this is the time when children should have a better concept of money and how it works. In my practice, I have almost always found that it’s helpful to involve children in the conversation leading up to a decision. In other words, it’s okay to ask them, “What do you think is a good age for you to receive an allowance?” “How much do you think your allowance should be?” and “What chores should you be responsible for as a member of the family and which ones should result in an allowance?”
One of the great advantages of receiving an allowance is that it gives children the opportunity to learn budgeting and money management skills. These skills will help children throughout their lifetime, and helps them build a solid financial foundation. If you choose to give your child an allowance, try to have a conversation beforehand about the importance of wise money management, and help your child figure out a plan for spending (and saving) his allowance.
Some experts suggest you frame the discussion about allowances in a way that reflects your family’s values on such things as work ethic, responsible spending, savings and individual responsibilities within the family structure. If you have these talks with your child while he is young, you are not only teaching him to be responsible with money, but you are also providing him with a valuable lesson in financial literacy, which will be an asset throughout his life.
When it comes to the question of earning money for chores, it may make sense for all family members to have certain responsibilities for which they are not compensated (in other words, they come with being part of the family unit) and other responsibilities they can opt to assume in exchange for an allowance. It may also be helpful to make a list of parent “chores” or responsibilities for which you receive no monetary incentive! Doing so will put the entire conversation in context.
Setting up a savings account is also a way to teach them about the banking system and the importance of having a “nest egg.” A “sky is the limit” approach is generally not helpful, as it does not channel spending into a priorities system nor teach children the value of work. It may also create a sense of entitlement.
All in all, these are important conversations to have with our children – and they can continue over time as children get older and family circumstances change.