For many kids in the ‘80s and ‘90s, getting a weekly allowance was as typical as renting a VHS tape on a Friday night. But even if you didn’t get an allowance growing up, you may be a parent now, wondering whether giving your kid a regular payout will teach good money management. (Or maybe they’ll blow it all on fast food and the latest video games, like their parents did.)
It’s true that giving your kids an allowance can influence their financial confidence and skill set. But without a thoughtful action plan, the simple act of handing out money might not have the lasting impact you desire. Here, Money and Mindset podcast hosts Brian Ford and Bright Dickson share some insight.
The psychology behind giving your kids an allowance
Some parents see an allowance as an opportunity to teach good financial literacy and money lessons, such as saving and generosity. On the other hand, some parents are wary that an allowance could lead to greed or entitlement, as children may think they deserve their money no matter what.
It’s not about deciding which camp is correct. Instead, it’s about determining where an allowance falls in your own value system and parenting philosophy.
Read more: 4 crucial money lessons for your children
“You need to make sure that you’re teaching your kids what you want them to know about money,” says Dickson. “How do you model a healthy relationship to money?”
Getting an allowance is only the first step in growing your child’s money skills. Regular conversations about money goals, how much they’re saving, and how you and your co-parent handle money all contribute more to a child’s confidence and financial literacy than just getting a weekly allowance.
Brian Ford, head of financial wellness at Truist, agrees that parents need to be thoughtful about allowances.
“A small allowance does prime that pump for them, and gives them the opportunity to learn about finance,” he says. “But I think allowances shouldn’t cover everything a child wants. There needs to be a gap so they want to work extra, so that they can actually receive more money for the things that they really want.”
Ford calls this a hybrid approach—giving kids a regular weekly allowance and then offering opportunities to earn even more money if they want it. This can help teach dedication and hard work.
If you do decide to give your children an allowance, there are a few considerations before cutting their metaphorical paycheck.
5 tips for creating an allowance action plan
1. Decide what age to start—and end: While your preschooler may already be asking for change to pay for their ice cream, the earliest kids will start to grasp money concepts is around kindergarten. Ford recommends starting an allowance anywhere from ages five through 10.
“A lot of parents like the age of eight,” he says. “Eight-year-olds start to grasp more important concepts … then, I think through high school is totally appropriate.”
2. Choose if you want to tie their allowance to chores: You’ll need to decide if you want your child to complete weekly chores for money—making their bed, setting the table, taking out the trash—or if you want to give them money without the expectation of completing tasks. Many experts think allowances should not be tied to chores: Children should help out around the house because they’re part of a family, not because they’re paid. But this decision is unique for each family, depending on what works best for your household.
Whatever you decide, consider Ford’s hybrid model, where kids have the opportunity to earn more money for one-off tasks that are above and beyond the weekly routine. This can motivate them and teach them the benefits of hard work and saving for big-ticket items.
3. Figure out how much money you want to give them: There are a few methods for determining how much to give your kids, and there is no set answer. Some parents go by the rule of one dollar per year of age (so $8 per week for an 8-year-old), whereas other parents pay per chore. According to a study by the American Institute of CPAs, the average weekly allowance is $30,1 but what you decide to pay your kids should be largely influenced by your income, financial goals, and family size—there’s a big difference between paying one child $30 per week and paying four children $30 per week.
4. Decide how you’ll pay them: Having cash on hand has fallen by the wayside in favor of credit cards, so it may seem like a nuisance to have exact change to pay your child’s allowance. But Ford says there is value in paying young kids—especially ages 10 and under—with actual dollars and cents.
“It starts to teach them what a dollar is versus a quarter, and there’s actually some math lessons in there as far as fractions and so forth,” says Ford.
As they get older, Ford says you can shift to digital currency, since that’s more realistic when it comes to how they’ll be handling money in the future. Try setting your kids up with a savings or checking account and transferring money to them through your linked account or Zelle.
5. Help them understand how to use their allowance: Perhaps the most important part of earning an allowance is the economic conversations it can inspire between parent and child. As Dickson points out, if your child tries to cut a deal about how much they’ll be paid for a task, use it as a teaching moment about negotiation and meet in the middle. When you’re walking down the toy aisle at a store, talk to your kids about how many weeks’ allowance it would take to save up for that awesome new toy or game. Or as your child starts to accumulate money and their piggy bank becomes full, discuss setting some financial goals like donating to a favorite charity.
“Giving children money, having allowances, having them work for money—all that takes some effort,” says Ford. “It takes intentional parenting … but the best way to learn is by doing.”