In Focus – SCCCU Blog

More parents are talking to their kids about money today than ever before. According to recent research, about half of all families are now having regular money conversations with their kids. Of course, we wish the number were higher. But this is still great news. Kids need to learn financial skills, and starting at home is the best route to lifelong money literacy.

But talking alone is not enough. Kids need direct practice with money and making decisions. And that means they need to have some money to manage. The most effective tool for that? An allowance.

Effective money lessons come in three parts: direct instruction, modeling from parents, and giving kids real experiences with money. Teaching kids about money is an opportunity to share your values around what matters to you, whether that’s frugality, paying yourself first, or charitable giving, and how much. They also learn simply by watching what you do and how you do it, so be sure to monitor your own behavior. But kids also need to make their own decisions and learn from their mistakes. Those will resonate far more than a parental lecture, and that’s exactly where an allowance comes in.

Many parents have strong opinions against giving what they consider a “handout,” especially when finances are tight. The most important thing is that you figure out what works for your family at a given time. There’s no “perfect” way to handle an allowance, and if it’s not in the budget, there are still plenty of ways to teach money lessons for free. That said, when giving an allowance, it helps to follow a few simple rules: be clear about what the money is for, be consistent about when you give it, use cash, and think twice about tying it to chores. It’s also important that your child has real control over their money (with a little guidance from you, of course).

When and How to Start an Allowance
You can start offering your child an allowance younger than you might think — possibly by age four or five, or once they begin school. Some families start with around $20 per month, but the right amount depends on your child’s age, the lessons you want to teach, what you expect them to pay for with their own money, and your family’s budget.

One helpful system is using three jars: a “save” jar for money set aside for the future, a “spend” jar for money that can be used now, and a “share” jar for charitable giving. For example, if you give $5 per week to a five-year-old, you might divide it into $1/save, $3/spend, and $1/share. The goal is to give kids enough money to make real choices while building habits of saving and generosity.

An added benefit of the jar system is that it takes you out of the driver’s seat when you’re standing in line at the grocery store and fielding requests for candy or other non-essentials. Once you’ve established the categories of what you will and won’t cover, your child gets to decide how to use their money. And very often, they’ll be more responsible with their own money than they are with yours.

It also helps to keep things old-school and use cash, especially when kids are young. Children learn better with hands-on experience — real bills and coins they can physically move between jars. Cash works well through high school, as long as you eventually transition to debit cards and apps before they leave home so they can practice digital money management. Research shows that parting with cash makes people think more carefully about purchases, and kids need that experience too.

Increase Financial Responsibility with Age (If It's in Your Budget)
When kids are very young, their allowance will likely go toward small, incidental purchases. But by middle school, and certainly high school, many families shift to a larger monthly allowance paired with greater responsibility, such as covering part of a phone bill, meals out with friends, or new clothes.

If a larger allowance feels beyond your means, remember that the goal isn’t to add a new line item to your budget, but to gradually shift some spending decisions to your child. Start by tracking expenses you’d like your child to take on and build their allowance around that amount. The learning happens when they’re responsible for choices, including the uncomfortable ones. If they spend everything too early in the month or regret a purchase, don’t rush in to rescue them. The only lesson in that is that the Bank of Mom and Dad will bail them out.

The Argument for Not Tying an Allowance to Regular Chores
An allowance is a tool for learning about money. The goal is to open up positive conversations around the skills you want kids to develop. When you tie allowance to chores, it’s easy for the money conversation to become punitive. What happens if your child skips chores? Or rushes through them just to get paid? Or, what happens if your child is so unmotivated by money that they decide the trade-off for them just isn’t worth it? The focus shifts away from financial literacy and toward conflict.

That doesn’t mean kids shouldn’t do chores, or that they won’t learn the value of work. Doing unpaid chores around the house helps children develop internal motivation, which serves them well long-term. Learning about money and contributing to the household are both important, but kids learn different lessons from each, and it’s easier when you keep those conversations separate.

It’s also perfectly fine to pay for optional above-and-beyond chores, such as cleaning the garage, shoveling snow, raking leaves, or washing the dog (in other words, things you’d pay an outsider to do). This gives kids experience working for money and developing an entrepreneurial spirit, which is a different skill set from pitching in with everyday family responsibilities.

Why Allowances Work
The true benefit of giving kids an allowance is the conversation it creates about the value of money, how we pay for things, and the difference between needs and wants. Exposing children to financial literacy early builds comfort and confidence around money — for them and for you. Even if you don’t feel like a financial expert, learning alongside your kids is powerful, and your confidence will grow right along with theirs.