I have been thinking about my children’s weekly allowances because of, well, an “incident” at the toy store last week. My son wanted to buy something with his money. One choice was a set of plastic figures—which I knew whole heartedly he would take out of the box, play with for five minutes and become frustrated with the lack of move-ability or anything else.
Then I did one of those mom things and muddled the waters. I tried to talk him out of those figures. And gave him all of the reasons not to buy them.
But, then I recalled all of the many articles I’ve read about children and allowances. The only way for children to learn about money is for them to spend it. It is much better for children to make small mistakes early with their money than to make big money mistakes later on in life. If you give an allowance, the choice should be theirs as to what they buy so they learn the value of their money. So then I started to back track on talking him out of the figures. I ended up confusing and upsetting both of us, and my son left empty handed. At the moment, I did not feel like I did a good job of handling the allowance guidelines.
How is a good way to structure allowances, so youth learn those valuable financial lessons?
Lewis Mandell, PhD, has found that a majority of 12th graders graduate from high school without an understanding of money and finances. Having a financial class does not seem to be enough. Youth need practice in dealing with money and making decisions on saving and spending. An allowance is one way many families hope to give their youth just such experiences. When giving an allowance, you might consider some of the following.
Setting up the Allowance
Some families give an allowance unconditionally, that is, the children get a set amount every week or every month just for being part of the family. Others believe that children should get the allowance as a reward for doing chores. And some people combine approaches, giving a set amount and then paying extra for chores.
For example, at our house, we believe that certain chores and jobs have to be done as part of a family. We do not pay for the day-to-day things that have to be done. We give a weekly allowance separate from that.
Before the age of five, children may have a basic sense of money—for example, recognizing coins. Cognitively, though, they will not begin to understand the value of an allowance until around ages 5 to 7 (around 1st grade).
So, how much do you give? Some recommend $1 per week for every year of age. Others say half of the child’s age. It depends on your resources, the size of your family and on what you expect the youth to pay for, too. Some teens have to buy their own clothes, so the allowance might be higher to include those items. Whereas, some youth can spend allowance on toys or entertainment only and not have to buy clothes.
The research firm Yankelovich did a national survey in 2005 of almost 1,500 children. The study found that less than 60 percent of children ages 6 to 17 get some sort of an allowance. Those who do get an allowance, got anywhere from less than $5 a week to $50 per week.
- 6- to 11-year-olds—the average is $5 to $9 a week
- 12- to 17-year-olds—the average is $10 to $19 a week
- around 15 percent of 12- to 17-year-olds received $20 to $49 weekly
Concept of Spend-Save-Give
In giving children and youth an allowance, families hope to instill financial knowledge in their children. By the time youth are in college or young adults, they should be able to manage a year’s living expenses. To be able to do so, they need role models and they need a chance to practice through the years. This includes saving money and learning they cannot have everything right away.
Some families set up an 80/10/10 rule for saving and spending. Children save 10 cents from each dollar; set aside 10 cents from each dollar for giving; and have 80 cents from each dollar to spend as they choose. (Or some other sort of breakdown for how much to save and spend.)
For very young children, this might be giving them coins to put into a piggy bank or box to save until they have a better understanding of what money means.
For younger children (and even for adults), one way to do this is by having envelopes or jars labeled “spend,” “save,” and “give.” When children get an allowance, they divide their money into the corresponding envelopes or jars. Or, as youth get older, they can set up electronic spreadsheets with spending-saving-giving categories and track expenses there, too.
As with other parenting issues, families need to decide what works for them in regard to allowances. They need to consider the ages and developmental stages of their children, but will need to see what works for them. It’s good to revisit every few months or each year, and if one approach isn’t working, families can try a different one.
And lucky for me as a parent, the toy store event was not a single time opportunity. The frustration was part of life’s lessons—things don’t always work out like planned (for both my son and me). But we’ll still have plenty of chances to practice those money lessons and skills.
For more information on allowances, see the following (these are just a few website resources):
- Children and Allowances http://missourifamilies.org/features/financearticles/allowance.htm
- Kids and Money Newsletters http://www.ext.nodak.edu/extnews/pipeline/d-parent.htm
- Age-by-Age Guide to Giving an Allowance http://parenting.kaboose.com/age-and-stage/age-allowance.html
- Kids and Money. Retrieved August 17, 2010, from North Dakota State University Extension Services: http://www.ext.nodak.edu/extnews/pipeline/d-parent.htm
- Mandell, L. (n.d.). UB School of Management. Retrieved August 16, 2010, from Lewis Mandell: http://mgt.buffalo.edu/faculty/academic/finance/faculty/lewm
- Moses, E. (2000). The $100 billion allowance: Accessing the global teen market . New York: John Wiley & Sons, Inc.
- Yem, S. S. (n.d.). Kaboose. Retrieved August 16, 2010, from Age-by-Age Guide to Giving an Allowance: http://parenting.kaboose.com/age-and-stage/age-allowance.html