In Focus – SCCCU Blog

In the age of digital and mobile everything, it should come as no surprise that even something as old-fashioned as a child’s allowance has evolved. Thankfully, more parents are discussing money with their children today than ever before. However, to achieve lifelong money literacy, kids need more than just talking — they require direct practice with money and decision-making. One of the best tools for that is an allowance. An allowance enables kids to make their own choices and mistakes, and those will resonate far more deeply than a parental lecture about money.

Many parents have strong opinions about not giving what they consider to be 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 your budget right now, there are tons of ways you can teach your kids money lessons for free.

Don’t Tie an Allowance to Regular Chores
An allowance is a valuable tool for learning about money. The goal is to initiate positive conversations about the skills you want kids to learn. When you tie allowance to chores, you’re setting yourself up for using an allowance in a punitive way. What happens if your kid skips their chores? Or what if they develop the habit of rushing through their chores so that they can get paid? The chore focus shifts the conversation away from financial literacy.

Of course, this doesn’t mean your child doesn’t do chores, or that they won’t learn the value of work. Doing unpaid chores around the house encourages your child to develop internal motivation, which will benefit them in the long run. Learning about money and chores is both important, but kids are learning different things from each conversation, and it’s much easier to teach those lessons if you keep them separate.

It’s also perfectly fine to pay for optional above-and-beyond chores — things like cleaning the garage, shoveling snow, or mowing the lawn. Your child will get the experience of working for money and developing an entrepreneurial spirit. That’s a different skill set from pitching in with family chores.

When and How to Start an Allowance
You can start offering your child an allowance around age 5. The amount to give is up to you, but many parents consider a monthly payment of $5 to $20 — give it weekly, though, to help them learn to budget. You can offer more or less depending on the age of the child, the lessons you hope to teach, what you’re expecting your child to pay for with the money, and your family’s budget. Doing a sanity check with your kids’ and your own social set is a good idea, too.

Next, guide your kids on how to use the money. One helpful method is to have three jars where your child can keep their money — a “save jar” for money to be saved for the future, a “spend jar” for money that can be spent now, and a “share jar” for charitable contributions. Let’s say you give $5 per month to your 5-year-old. That might divide up into $1/save, $3/spend, and $1/share. The goal is to give kids enough spending money that they have some purchasing power and room for decision-making, while also developing a regular habit of saving and giving.

An added benefit of the jars? It takes you out of the driver’s seat when you’re in the grocery store checkout, fielding requests for comic books and candy. Instead, your answer can now be, “If you really want it, you can use the money from your allowance.” Many times, they’ll be much more responsible with their own money than they will be with yours.

And despite the existence of teen debit cards, start with cash. Your kids will learn better via hands-on experience, with real bills and coins to put into their jars. Just make sure to transition to debit cards and apps before your kids leave home for college, so they can practice using digital payment methods. Cash is vital because parting with it makes us think more critically about our purchases than swiping a debit card, and kids need to learn to manage that card temptation.

Increase Financial Responsibility With Age — If You Have It in the Budget
When kids are little, they’ll use their small allowance for incidental spending, and you likely won’t be giving them very much. But once kids hit middle school, you might consider what’s called a “break-through allowance.” That’s a larger allowance given monthly, which may come with increased responsibility, such as paying their portion of the cell phone bill, or putting money toward meals with friends, or buying new clothes. Every family operates differently, so you get to decide what’s right for yours.

If a larger allowance sounds beyond your means, remember that the goal here isn’t to add a large line item to your budget — it’s to shift some of your spending over to your child. Start by tracking the spending you’d like to transfer to your child to determine an appropriate amount. The goal is that they’ll learn to make meaningful choices about their spending — don’t bail them out if they spend all their money early in the month, or buy something they regret.

Why Allowances for Kids Work
The true benefit of giving your child an allowance is the conversations it opens up for your family to discuss the value of money, how to pay for goods, and the difference between needs and wants. Exposing your kids to financial literacy early is the best way to make them comfortable with money — and help you get more comfortable, too! Even if you’re still learning your own money identity, you’ll have an opportunity to learn as you go with your kids, and as you do, your comfort will grow.