A Parent’s Guide to Allowance
Tips on Teaching Kids Smart Money Management with an Allowance
Having a regular amount of their own money, or an allowance, is a sensible way for kids to make
independent spending choices and develop appreciation for the things they buy. Experts agree the best
way for children to acquire financial savvy comes through personal, hands-on experience. Here are a few
tips on creating an effective allowance program at home:
Recent studies have shown that most three-year-olds are interested in learning about money and how
things are bought and sold. Around age five, children start to develop a deeper understanding of the
concept of money. These early years are a good time to begin explaining how money works and introducing
children to basic financial management skills. Learning the value of money is also a natural way for
youngsters to incorporate basic math skills into everyday life.
Pay By The Rules
All parents have their own way of approaching allowance: Some give one dollar for each year of age (with
older children getting slightly more as their needs grow), while others tie allowance to specific household
chores. In any case, it’s wise to make allowance parameters clear up front and experiment as a family until
you come up with the right formula.
Once an allowance amount is agreed upon, make a list of what kids are expected to pay for with their
allowance. Items may include leisure activities, sports or games, toys or clothing and treats.
Giving allowance on a pre-determined schedule, whether it’s weekly or monthly, sets up a regular routine.
It’s equally important to pay allowance on time to demonstrate the value of honoring one’s financial
commitments. Keeping an allowance calendar helps parents stay on track and kids work toward their
savings goals. Some parents reevaluate allowance amounts at the start of each new school year or on
Sit down with children to explain about allowance -- how much it is, when they get it, and what they are
expected to pay for with it. Unless the allowance is tied to specific chore assignments, avoid threatening to
withhold allowance payments as a consequence of bad behavior. Being able to speak openly about money
matters sets the stage for a positive relationship with financial issues.
Although parents should avoid telling kids what they can and can’t buy with their allowance, it’s important
to identify the four important elements of managing money:
• Sharing or charitable donations to a church or synagogue, philanthropic cause or even birthday
presents for family or friends.
• Spending for items kids want or need, such as toys, snacks and entertainment or specialty items.
• Saving for something which costs more than the weekly allowance. This helps children develop
discipline and respect for the value of money.
• Investing helps kids set realistic goals and explore the possibility of saving 10-20% of the allowance
in the child’s own bank savings account for bigger, longer-term goals.
Following these simple tips will help provide children with valuable money management skills that will
serve them well into adulthood.