Parents often ask me, “How much allowance should I give my child?” Alas, there is no magic formula. If you really want to know how much money to give your kids, look no farther than yourself.
As a parent, you are in the unique position to transform your kid’s allowance into one of your most powerful parenting tools. What’s more, your allowance method can work for any child from pre-school through high school, all at no additional cost to you.
Every parent, deep down, knows that one of the goals of teaching kids about money is to prepare them to manage money responsibly as an adult. This can be defined as, “The kids grow up and move out, don’t move back and don’t ask for money to bail them out of their financial mistakes.”
Before you decide on the right amount, take time to rethink your ideas about allowances. No matter how you got money or used money as a kid, the playing field has changed for your kids. Your kids are growing up in a society that spends money that doesn’t look at all like the cash you parents might have given you back then.
Set up an allowance program
Start by imagining that you are setting up an apprentice program in your family to train your children on how to manage money. So what might an apprenticeship for money management look like?
Apprenticeships include basic elements: standards, payment, work (skills development), and related training curriculum. How can you apply this concept to allowances?
Standards for allowance
In my book, “The No-Cash Allowance” the standard is simple. If a kid can count to 100 he can get an allowance. This opens the door to many pre-schoolers, as was my experience with my youngest daughter, who started her allowance at age 3. The point is that even if a child is young she is still capable of making decisions about her own money.
A foundation of a powerful allowance system is consistent payments. This means you always pay your child on time. This can be a weekly stipend that is age-based, with regular increases on each birthday.
Think of this amount as the totally discretionary part of the allowance system; your kid can spend this money anyway he wants. Make this amount meaningful, but not enough to meet all the child’s needs.
The payment method described in my book, The No-Cash Allowance, works well with the apprentice concept. A no-cash allowance starts as an at-home account where parents act as bankers and the child as account owner. This means that all funds you give your child are directly deposited (written in) your child’s home account. Your child can only receive cash by withdrawing it from the account.
Allowance skills development
In the adult world, your kids will work to earn money. In the allowance world, they have job responsibilities of a different sort. These include: making decisions, meeting responsibilities, and allocating available resources.
As a parent remind yourself that your kids don’t know how anything about managing money, but they do have the capability to do so. In fact, your kids are already managing money in their own playtime.
You may think playing store is just a game, but your kids are making decisions in an imaginary setting. You may think Monopoly® is just a game, but if you kids already play it, they have basic skills for making their own money management decisions.
To make the allowance the keystone of the training program, the child has to have some responsibilities. A 3-year-old has few responsibilities so a few dollars a week is enough.
A 17-year-old can be expected to manage amounts that could be hundreds of dollars a month. These can include day-to-day expenses that are relevant to the kid’s life, such as school supplies, clothes, and entertainment.
Here’s where financial literacy classes in school play a part. Financial literacy curriculum will provide valuable knowledge about money and finances. This, combined, with the hands-on experience your child is gaining by managing his own money at home, will help prepare for responsible money management as an adult.
Remember this–knowing about banking, investing and other financial matters, is of no use to your children if they have not gained the skill of decision making. Practicing with real money develops this skill.
Ready to set up your financial training program?
Perhaps you’ve read enough to help you get started. Your kids will thank you someday. If you’re not quite ready, the next blogs will look at each of these areas in more depth.Follow me on social media: