Giving a child an allowance is a good way to provide a financial education while giving her some independence. How much, when and how parents and caregivers should provide an allowance are always confusing issues. How you treat and implement an allowance depends on individual circumstances and the child’s development.
To determine when your child is ready to have an allowance, ask yourself the three following questions:
- Can my child take care of the funds I give her? On a basic level, taking care of the funds means your child can remember where the money is physically—that is, she won’t lose it. On a higher level, it means your child remembers how much money there is and how it has been allocated. Your child might not be ready for an allowance of real money if she can’t demonstrate basic responsibility and fact recall.
- Can my child do basic math? Without the concept of what numbers really mean and the ability to calculate, it will be almost impossible for your child to manage his funds.
- Can my child do basic sequencing? Planning anything (yes, even a budget) requires the ability to sequence or do things in a specific order. For example, earning money comes before depositing it in the bank. If your child can put series of concepts or tasks together this way, they likely can go through money-related processes.
To figure out how much to give in allowance, ask yourself:
- What is the family budget currently like? No matter how cognitively advanced your child is and regardless of what you feel your child deserves, a dollar is a dollar is a dollar. If you can only spare $5, you can’t create an allowance of $10.
- What types of items might my child buy with his allowance? No one knows your child’s tendencies and needs better than you. If you know your child would blow the whole wad of dough on Some Random Candy in two minutes, she probably isn’t ready to handle large amounts of money. Pump up the funds once she’s demonstrated some financial responsibility.
When you’re ready to give your child his allowance, have a pre-allowance play-by-play. Explain how allowances work and that he’ll be making real money decisions. Identify the allowance amount and how you figured out what that amount should be. Then talk about what you expect him to do—that is, be clear about the options he has for the funds you provide. Set clear goals about what you want him to learn so he understands your objectives.
It’s typically best to pick a set day and time you’ll provide the allowance funds. This gives your child some predictability and sets the stage for real-life experiences (say, getting her paycheck from an employer on a schedule).
A big part of giving your child an allowance is going over the family budget. Funds for allowances have to come from somewhere, and your child should understand how his money fits into the big financial picture and affects everything else. Go over budget numbers often and check in with your child about what they’ve done with and want to do with their funds. Create clear goals.
Although it’s fine to give your child a “simple” allowance using the least amount of bills or coins, using smaller denominations when handing out the cash makes allocation over several areas very easy. For example, if you give your child two $5 bills instead of a $10 bill, it’s a snap to split the allowance evenly between spending and saving. Be clear about any allocation rules from the start, such as the requirement of always saving at least 25 percent.
The Online Option
Your kids may not have their piggy bank money with them when they are ready to make a purchase decision. You may want to consider using online services like bankaroo to be able to keep track of your kid’s allowance using your mobile phone when you are on the go.