Money Lessons

Most parents give their kids a regular allowance — some a few dollars a week, others substantially more. But is that advisable? And if it is, how much should you give and when should you start?

Experts agree that an allowance can teach kids important money-management skills, like how to save for things they want, how to budget their money and how to choose between spending goals. 

An allowance “is a great way to teach kids about the real value of money, how to be organized and responsible and how to plan for the future,” says Brad Munson, a personal-finance expert.

It’s a great opportunity for kids to experiment with money and to learn from their mistakes, adds financial counselor Ray Martin, the author of several money-management books. “It’s a way for them to learn big lessons with small amounts of money at an early age.” 

It’s important that you talk to your kids about the value of money, and it’s best to do so in the context of an actual allowance. Otherwise, it’s like trying to teach them how to play the piano without ever letting them sit at the keys, says Marty Allenbaugh, a certified financial planner.

Research shows that giving kids a regular allowance while discussing with them the importance of money makes them more financially responsible as adults. They become “less likely to arrive on your doorstep years from now with a duffel bag full of dirty laundry and a mountain of credit card debt,” says personal-finance expert Evonne Lack.

Many parents start giving their kids an allowance at age 8. However, as Martin says and other experts agree, it’s the child’s “aptitude not the age that really matters.” 

So how do you know if your kids are ready to receive and learn from an allowance? Research shows that happens once they have reached certain developmental milestones, such as being able to confidently add and subtract and understand that money can be exchanged for things they want. But, here, kids differ widely. Some reach these milestones at age 4 or 5; others get there by age 8 or 9. 

“So if your child tends to shrug at money, losing it before it can find its way to his dusty piggy bank, hold off until you see signs that he enjoys saving it or thinking about how he might use it,” says Lack. 

Finally, how much should you give your kids? Experts agree that, as a rule of thumb, you should give them $1 per year of age on a weekly basis: for example, $6 a week for a 6-year-old. The advantage of this approach is that kids will know that they’ll get an automatic raise every birthday. It may even reduce sibling arguments, because the younger ones will understand why the older ones get more. 

Parents should feel free to deviate from this rule-of-thumb, depending on whether they live in an expensive or inexpensive area, their particular financial situation, how many kids they have, and which regular expenses the kids are expected to pay for. 

“If a straight $5 or $10 per week (or even per month) makes more sense to you than paying a dollar per year of age, then pay what works for you,” says Susan Borowski, the author of Money Crashers. 

If your kids are very mature, you can discuss this issue with them and reach a mutual agreement on a reasonable amount. Martin says such a discussion “helps to develop budgeting skills, teaches responsibility and prepares them for the realities of personal money management.” 

However, the allowance shouldn’t be too high. If you give kids too much, they won’t learn how to budget and allocate money because they never get a chance to prioritize among competing spending goals. 

“Give your kids just enough so that they can get some of what they want but not so much that they don’t have to make a lot of difficult trade-offs,” says Ron Liebler, the author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. “Let them own those, so they know what it’s like to make financial decisions that resemble grown-up ones.” 

Whatever amount you decide on, make sure to follow a consistent schedule and stick with it — whether weekly or monthly. As well-known child psychologist Dr. Mary Kelly Blakeslee says, “random payments will be frustrating and confusing, and will reduce the opportunity for learning.”