Parents and experts share how much to give, when to start giving and more
“The Rules” is a new Moneyish series where we define the rules around sticky money topics like giving an allowance, who pays on a date, combining finances with your partner, and more.
There’s no allowance for breaking these rules.
More than half of parents (53%) with kids under 21 give them an allowance, according to data released in January by personal finance comparison site Finder.com. They fork over an average of $16.98 per week to their kids — which potentially adds up to a whopping $790 million per week or $41 billion per year in allowances handed out to kids, the survey of 2,000 adults revealed. But many parents are giving those allowances all wrong. More than one in 10 parents (roughly 14%) say they do NOT require their kids to perform a chore in order to get that allowance — a fact that many experts and parents alike disagree with.
Here are the rules for giving an allowance smartly, including how to tie it to chores, what age to start giving an allowance and how much to give.
Does an allowance need to be tied to kids doing chores?
Fort Lee, New Jersey mom Zaida Khaze, says her daughters, ages six and eight, are expected to do things like keep their room clean each day without remuneration, and then she gives them an allowance when they do weekend chores, like polishing furniture or doing extra cleaning around the house (for which they get $1 per task). “I feel it is important to tie an allowance to chores because it teaches them the value of money,” Khaze, who began giving her kids an allowance at 4 and 6, says. “They are learning to be independent, organized and taking pride in their environment, which will hopefully carry onto their adult life.” Added bonus for mom: “It is less nagging about cleaning when there is a small reward tied to it.”
Experts say this is the right approach: “Allowances are a great idea, as long as they are tied into chores. The earlier children learn basic financial principles, such as the exchange of goods and services for money, the better. And nothing builds a child’s self-esteem faster than self-reliance,” says Pamela Yellen, a financial investigator and author of “The Bank on Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.”
Note that children should have some expected level of contribution to the household for which they don’t get paid, says Beverly Hills psychotherapist Fran Walfish, author of “The Self-Aware Parent.” Then, an allowance should be given “with the understanding that they will do more and above the usual expected tasks,” she says — like emptying the trash or doing the dishes.
To make sure the kids are clear on their tasks, entrepreneur Chris Wolpert and his wife Valerie, parents to two daughters ages 8 and 3, keep track of required chores using a Google spreadsheet for each child with the name of each chore, its due date and its dollar amount. “If they complete the chores on time they get the full amount. If it’s past the deadline, we still pay them, but it’s a reduced amount [usually cut by half]. If they don’t complete the chores they don’t get anything.” In doing this, the Wolperts are helping their kids understand that to earn money, you must work, and that avoiding or delaying work lowers the monetary rewards. “Starting allowance for our kids was always about teaching good habits, financial and otherwise,” says Chris Wolpert.
What age should you introduce an allowance?
Experts say you should start giving an allowance when children are around four or five years old — roughly when they start asking about and understanding the concept of money. Kelli Bhattacharjee, began giving her son an allowance at four, when she found that he both started to get curious about money and began asking her to buy a bunch of stuff for him. “We give one quarter, one dime, one nickel and one penny daily,” Bhattacharjee, founder of Freebiefindingmom.com, says — noting that for a child so young, giving the money to them daily helps them remember to do their chores and other tasks.
For now, allowance is “a way to get him to learn about money and denominations,” Bhattacharjee explains — and mom and son mostly just collect the money in the piggy bank “and when it starts to feel, as he puts it ‘really heavy,’ we dump it out, count it together, roll it and then take it to the bank.” Kelli then explains to him that putting it in the bank will help him earn more money, but as he’s only four, she jokes, “all he seems excited about is getting a lollipop at the bank each time we go.”
But as children get older, they will absorb more important lessons. Lisa Bianculli Hutter, the senior director of wealth planning for Wells Fargo Private Bank and mom to a nine-year-old daughter, tells Moneyish that she divides her daughter’s allowance into “a save jar, a spend jar and a charity jar. “Over time this has taught her the value of money, what things actually cost, how to make spending decisions, and the rewarding experience of giving to charity,” she tells Moneyish.
”The first time my daughter spent her save and spend jar all at once she did it on candy and some inexpensive trinkets at a local carnival,” says Hutter. The following day, when Bianca wanted a shirt, Hutter talked through how she didn’t have the money to buy that now, how long it would take her to save for that shirt and how she would make her spending decision next time.
Hutter also makes sure Bianca directly sees the value of her charitable giving. When her daughter decided to give money to an animal shelter, “we took the money to our local shelter and she presented it to the volunteers. They proceeded to give her a tour of the shelter and explain all of the ways that donations were spent. This only caused her to want to save even more money to continue to help and consider ways that she could raise funds from others,” Hutter says.
How much should you give?
Worry less about how much you give than that you use the allowance as a chance to talk to your children about money, says mom of two Kimberly Palmer, the author of “Smart Mom, Rich Mom.“The whole point is to get them used to handling and talking about money so it’s not so much the amount as the conversation around it – how they can save or spend it,” she says.
Conversations should be age appropriate: Yellen says that for children ages 4-8, talk about how money is exchanged for things, and for those 4 -12, help them decide how they will spend their money and how money is earned. To do this, have your child choose and pay for something they want with the money from the allowance, which lets them see that to get things, you have to pay money.The reason: “Kids don’t necessarily make the connection between money and the groceries, clothes and toys that show up in your home – especially if they only see you take that plastic thing out of your wallet at the store,” Yellen says. To show them how money is earned, clearly connect the chores they do with the money they get (like the Wolperts do in their Google spreadsheet).
Older children (those 8- 12) should learn about wants versus needs and delve into impulse buying, Yellen adds. Have them make a list of things they want versus need and how they would prioritize paying for those with their allowance. Use real-life shopping examples to combat impulse buying: If you child really wants a shirt now, you can let him know that he can buy that now with his allowance, but explain what he might be giving up in the future by doing that now.
Of course, many parents want a rough rule of thumb for how much to give. Mike Falco, founder of Falco Wealth Management near Philadelphia, notes that many parents he works with pay about $1 per week for each year old their child is. That’s what the Wolperts do, so their eight-year-old, for example, can earn a max of $8 per week. “Each year that goes by they have the potential to earn more money by accepting more responsibility. As they get older they also become responsible for paying for more things themselves,” he says. For example, “when our 8 year has to buy a gift, we split the cost 50/50 with her. When they turn 12 or 13 years old, they’ll then be responsible for buying friend’s gifts themselves.”
You can also consider giving them an hourly or a per-project rate, as Hutter does for her daughter. She gets $4 per hour or a per-project fee for chores like cleaning the bathroom or helping organize the garage. “Sometimes we set a price for a job by determining how long it should take and using her set hourly wage to calculate the pay for that job. In this way, she has learned that the faster she works, the more efficient she is with her time — allowing her to do more jobs or play sooner. She has also become a pretty solid negotiator. She never takes our first offer.”
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