Top 10 Allowance Tips

Money-Smart Kids™ Program

An allowance is NOT an entitlement or a salary. It is a tool for teaching children how to manage money and budgeting. As with all financial literacy topics, the most important resource parents can give is their time.

Here are my top 10 tips for starting an allowance and keeping your children on course towards financial responsibility--

1) Age 5 is the start. This should be a weekly stipendn a. As kids get older, the allowance should be given every two weeks.n b. In High School, the allowance should be once a month. The longer time periods correspond to the age of the child so that they have experiences managing a budget for longer periods of time.n c. In College, the allowance might be for the semester.

2) There really is no right amount. In order for kids to get a good understanding of how to manage their allowance, parents should begin with an amount they feel comfortable with their children walking around with. Then they can increase how much they give as the children can demonstrate good money habits.

3) You need to be explicit: this is a tool to help your kids learn how to manage money—the better you do, the more you will have to manage; the worse you do, the longer it will be before there is an increase. The allowance is a way of helping your kids learn good money habits—not of reward or payment for chores, or a means of getting them off your back! Keep this clear and you’ll have fewer arguments in the household.

4) For younger children, the best resource we know of is the Money Savvy Generation piggy bank. This is one of the resources we send children whose parents are part of our Money-Smart Kids Program. For those who haven’t seen this, it’s a clear bank so kids can see the coins and bills stacking up along 4 chambers – Save, Spend, Donate and Invest. Even if they don’t understand what to do yet for each of these, they’re beginning to understand the concept of managing money.

5) When kids are a little older and are walking around with their own money, you can link their allowance to one of their interests and create a budget they have to stick to. Let’s say your child is really into sports memorabilia. Rather than having the monthly conversation about what you will and won’t buy for your kids, you could give them $15 a week as a part of the “sports memorabilia” budget. n a. If they want Derek Jeter’s autographed baseball, they’ll have to save for a few weeks.n b. If they choose to buy packs of cards every day, that’s fine too.

6) Always assume that kids will run out of money before the next allowance is given. This is natural until they learn budgeting and money management skills.

7) Do NOT bail them out. It’s difficult to resist if Suzy can’t go to the movies with her friends because she ran out of money but it’s the only way to teach them these important skills.

8) You can give them the ability to earn extra allowance money by doing special projects. These are NOT, however, the daily activities associated with being a part of the family such as making their bed, cleaning the dishes, taking the garbage out. Additional money for special projects makes the real life link of hard work and additional pay and recognition.

9) At age 12, start to deposit their allowance directly into their checking account so that they can also start to pay some bills and learn to balance a checkbook

10) Keep talking. The more parents talk to their kids about their own finances and values, the easier it can be for them to understand what it means to be given the privilege of having an allowance. And the more children will gain better and more independent judgment as a result.

Getting started is always the hardest part. But developing a plan and sticking to it should eventually get everyone where they ought to be. Younger children can and should be allowed to make mistakes with money so when they’re older, they’ll be better able to handle money when mistakes could be much more costly.

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