According to the American Institute of CPAs, in 2016, nearly 70% of parents provide their children an allowance, with the average allowance totaling about $17 a week. But is paying your children an allowance a good idea? If so, how much should they get and at what age should you start?
The Pros of Providing Your Child an Allowance
- Allowances can help your children understand the concepts of money management. Help your children divide their allowance into different goals to help them learn the concept of budgeting. You can also have a discussion about what percentages might be appropriate for each goal—and make sure to ask their opinion.
- Requiring chores to be done in exchange for allowance helps teach children the value of hard work. Furthermore, having optional chores in addition to required chores may allow children to build a stronger work ethic to earn the extra cash.
- If you stress the importance of giving a portion of their allowance to a charity of their choice, you can help instill generosity in your children.
- Giving an allowance also allows you to introduce the idea of an employer who matches employee retirement contributions. Offer to match a certain percentage when your child opts to put some of their allowance in a savings account.
- Providing an allowance to young children can help jumpstart their math skills. Distributing their allowance in different denominations each time is a great hands-on opportunity for youngsters to begin to learn how to add and subtract coins or bills, or learn how to make change.
The Cons of Providing Your Child an Allowance
- Paying an allowance tied to household chores could undermine the idea that children should be a contributing member of the family without the expectation of compensation.
- When younger children are paid an automatic spending money allowance not tied to doing chores, they may begin to expect it without putting forth any effort. This can be a difficult attitude adjustment to make as they approach their teenage early-working years, and don’t understand why they need to get a part-time job.
If I Decide to Provide an Allowance, Where Do I Start?
Some experts have suggested that kindergarten is a good time to start paying an allowance, while others have suggested age seven or eight. Whatever age you start, the child should understand what value each bill and coin holds. As your child grows, you can continue to introduce new money concepts, such as opening a savings account when they reach 10 years old, or teaching the ins and outs of credit cards as they reach their early teenage years.
One recommendation for the amount of a weekly allowance is $1 for every year of age, although some experts recommend fifty cents. But regardless of the amount paid or starting age, make sure to include your children in the decision-making process. Explain the rationale behind your decision as this can be a fantastic opportunity for you to teach your children about the value of hard work and being thoughtful about money.