Allowance Basics
An allowance can be a great way to teach your child money management skills.With an allowance, your child can learn how to make decisions, deal with limited resources, and understand the benefits of saving and charitable giving.
There's no one correct way to handle allowance. As you decide when to start it, how much to give, and whether you want to link the allowance to chores, it's important to make the choices that are going to be the best fit for your family and your situation.
Starting an Allowance
Though there's no particular age that's right to start an allowance, it's a good idea to start it by the time a child is 10 years old. By that time, it's likely that a child has many opportunities to make thoughtful spending decisions, but he or she still looks to parents for a significant amount of guidance.
How much allowance should you give? It's going to depend on your financial situation and what kind of commitment you feel that you can comfortably keep. Experts generally recommend that kids get 50 cents to $1 per week for every year of their age - $3.50 to $7 for a 7-year-old, for example.
Regardless of how much you give, it's a good idea to regularly disperse the allowance and increase the amount as the child gets older.
Allowance and Chores
Should an allowance be tied to chores? Again, it's a personal choice. Some experts think that it's important to make this connection so that a child can learn the relationship between work and pay. Others say that kids should have a responsibility to help with housework, above and beyond any financial incentive.
Ultimately, you must decide what works best for you and your child. Whatever you decide, it's important to make sure that you both clearly understand the arrangement.
If you give an allowance for doing housework, make sure that your child understands what his or her responsibilities are and the consequences of not doing them. You may want to involve your child in the process of choosing the chores, and keep a chart in the child's room, on the refrigerator, or in some other place to remind your child what needs to be done.
It's also important to be consistent. If you follow through on your promise to provide the allowance on a weekly basis, you will set a good example for your child and provide an incentive for your child to keep up the other end of the bargain. If you don't keep up with the allowance that you promised, your child may lose that incentive and stop doing the chores.
Using an Allowance
How should a child spend his or her allowance? It's a good to have your child use an allowance for discretionary things, not essential purchases such as food or clothing. This will allow your child to make buying decisions - and mistakes - without dire consequences.
You may want to encourage your child to put away a portion of the allowance for charity and another portion for savings.
It's a good idea to have your child choose where he or she wants to donate the money. It may be a cause that your child can relate to in some way, like an animal shelter or a group that helps sick children.
If some of the allowance goes to savings, you may want to set up a savings account at a local bank. This way, your child can keep track of the money. Many banks offer special bank accounts for kids, and your child may enjoy the experience of getting mail, even if the mail is a bank statement.
Beyond Allowance
Once your child becomes a teenager, you may want to provide a quarterly clothing allowance in addition to the weekly allowance. If you do this, it's a good idea to set up a budget and allow your child to spend it as he or she wishes. If your child chooses to buy a $95 shirt, for example, he or she may have to learn how to make compromises on other clothing choices.
Updated and reviewed by: Wayne Adams, PhD, and Steven Dowshen, MD