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I believe that money management is one of the most important skills that children need to learn before they head off into adulthood. It naturally follows that if we want children to learn to manage money, we have to allow them to have some money to manage, right? That’s where allowance comes in! I wanted to start my kids on an allowance years ago but I was always stuck on what was the “right” way to do it.
It seems like a lot of people think that if you give an allowance without linking it to chores, you’re just going to have ungrateful kids who have no idea that money comes from hard work. The flip side is that if you DO link allowance to chores, the kids can choose not to do the chores and then not have any money to manage! Someone else would also have to pick up the slack on those undone chores. Another reason I was resistant to link chores and allowance is that I knew, in my family, it would lead to a lot of nagging and negotiating. I don’t ever want my kids to say, “You want me to take out the trash? How much are you going to pay me?” I didn’t want to create a source of power struggles!
I want to share our solution for doing an allowance to teach money management without making the allowance a payment for chores.
How to be a family team
We started this year on January 1st with our kids when they were ages 6 and 7. We sat them down and explained how things were changing. It went something like this:
As a family, we are a team and we work together. As you’re growing older, we know you can be more helpful around the house and be a bigger part of the team. One PART of the new responsibility you can take on is managing part of the family budget. You will get an allowance that is your part of the family budget (just like Mom and Dad each have our own “fun money”). It will be the money that Mom and Dad used to spend on things like toys and Pokémon cards, but now YOU are in charge of it. You can choose to spend it, save it, or give it away, and we encourage you to do all of those things. Another part of your responsibilities will be more chores to help the household run, since you’re big enough to help. You will be helping every day with getting dinner ready and helping every week with taking out the trash. You will also be responsible for cleaning your own rooms and the playroom.
They were VERY enthusiastic about this idea! I think it was very helpful to present the idea of managing part of the family budget as part of their new, more grown-up household responsibilities. We strongly stressed the “team” idea as a family should be a team that works together! We started out slowly with the chores and have added more throughout the year and constantly stress the “family team” part of it. There has been very little complaining with this strategy!
How much should we pay?
I struggled a lot with how much to pay. I read suggestions several places that you should pay in the range of 1/2 to 1 times the child’s age. Since my kids were 6 and 7 and I wanted to give them the same amount, I was looking at a range of around $3-7/week. I decided to start with $4/week and, so far, that has been working out well. They recently asked, “Mom, when will we get a pay raise?” and I told them that we will review their pay rate every January 1st (and I didn’t say this, but I will give at least a $1 raise per year).
Tips on making an allowance work long-term
- Consistency is key. You wouldn’t like it if your boss forgot your paycheck one week or made you have to ask for it. Pick a consistent pay schedule and stick to it! It’s hard to learn money management when you can’t count on your pay schedule. Put your kids’ payday on the calendar, have the cash on hand, and pay on time!
- Pay in $1 bills (or coins). This makes it easier to make a bit of a cash-envelope style budget. They can have some money put aside for spending or for saving up for a specific goal or for putting in the bank. I will write a separate post about how we handle storage of the kids’ money.
- Hang on to any $1 bills they reimburse you with. Sometimes the kids want to buy something online or want to get something at a store and forgot to bring their money with them. I allow them to reimburse me from their cash if I put something on my debit card. To save myself some trips to the bank, I mark that transaction in my budget software as a debit transaction coming from the “allowance” budget category and then I put the cash from the kids back into the envelope I keep at home for paying them. This “recycling” of the dollar bills means I don’t have to make bank trips as often.
- Don’t allow purchases “on credit”. I only allow the kids to reimburse me if they really have the cash on hand already. If you allow cash advances on next week’s allowance, you’re encouraging the use of credit, which I think is a very slippery slope. They should be learning good financial habits like delaying gratification by saving up for an item.
- Allow the kids to make mistakes. Learning from mistakes leaves the deepest impression, so it’s best to allow your children to mess up. I struggle with this one, because I want to protect my children from heartache. I try to remember that learning from mistakes with spending an allowance on toys is much easier than learning when they’re buying cars and houses. If it hurts you to see them “wasting” their money, try to think of the allowance the cost of a very valuable lesson.
- Be clear on what things the kids are responsible for paying for. The rules about what you will NOT be paying for out of regular household money should be very clear. For us, we do not buy any toys, trading cards, extra craft supplies (rainbow loom bands and Perler beads are big around here!) or video games (except for gifts for birthdays and Christmas). Anything they want in those categories can be bought by them. Also, any school sale items like student council pencil sales comes from allowance money (although, we will buy books from the book fair and school t-shirts). On vacation, we gave them some souvenir money, but told them that anything over that amount could come from allowance money. If you can remove some things from the family budget that you used to spend money on, you may be able to do an allowance without really impacting the family budget. I was pleasantly surprised that their spending has actually gone DOWN since starting the allowance. They think very hard about their purchases now!
- Encourage the use of a local bank account for long-term savings. My kids each have a bank account at a local credit union where they are putting away money for a car. They are enthusiastic about their savings account and love to compare balances with each other. I chose the particular credit union because it has a convenient location, offers a kids account with nice features, and has a change machine where they can count coins easily (free) for deposit. I think a kid’s account should be all about learning the process of banking – no need to worry about interest rates until they accumulate a significant amount. Doing their banking locally also offers an opportunity to learn manners as I encourage them to say, “I’d like to make a deposit, please!”
If the thoughts of drama surrounding an allowance have stood in your way of getting started, I encourage you to allow yourself to NOT link the allowance to chores. I believe an allowance should be about learning how to manage money only. Learning to be a hard-working person is another valuable lesson, but I don’t think the two things must be linked together. As my kids get older, I will encourage them to seek outside work like babysitting or yard work for neighbors. For now, they’re helping around the house as part of our family team and enjoying their new responsibility for their part of our family budget!
Please share your thoughts in the comments below.