"This is not fair! I need more money!” These words were spoken to me this past summer during a money management camp hosted for teenagers in Ocala, FL. The young lady was in the middle of a spending and budgeting simulation when she realized that she did not have enough income to pay for the high end clothing, red sports car, and 5 bedroom house that she wanted. As I watched these teenagers become frustrated with finances, it occurred to me that, in many cases, parents are waiting until their children are 16, 17, 18 years or older to start teaching them about money management. But how is an 18 year old who has always had Mom and Dad pay for everything going to know what to do when the National Bank of Dad closes and he has to go out into the real world and make ends meet?
According to Janet Bodnar, author of “Dollars & Sense for Kids,” children should begin learning how to manage money through an allowance as soon as they are old enough to recognize money’s worth. Linda Barbanel supports the same principle in her book “Piggy Bank to Credit Card,” indicating that as soon as a child is old enough to ask for something in the grocery store, it is probably time to get them started on an allowance. Many parents, however, are concerned by how much they should pay as an allowance, how often they should give an allowance, whether or not they should link chores to allowance, and how to get their children to save the money that they receive. All of these are valid concerns and there are many different approaches and theories out there, but most researchers agree on some certain principles.
First, let’s address the age at which children should begin receiving an allowance. As mentioned before, it is good to get children managing their own money as early as possible. If children have not already begun receiving an allowance by 6 years old, this is a good age to begin. It is at this time, around first grade, that children begin learning about money in school, and they are excited to apply what they learn. For instance, a 6 year old who receives a dollar a week can realize that that dollar is equal to 100 pennies, or 10 dimes, or 4 quarters, or 20 nickels; and he will be proud to share this information with his parents. Most children are going to get the money out of their parents anyway, adds Bodnar, so it is better to teach them to manage their own money than to allow them to nickel and dime you for every little thing they want.
Now that the age issue is out of the way, many parents just don’t know how much money is appropriate to give as an allowance. First of all, parents and children need to sit down and discuss what expenses the allowance will cover. For a 6 year old, one or two dollars a week will probably suffice to pay for the candy that they want at the grocery store, while an 11 year old may require a higher allowance in order to pay for movie tickets and arcade games. Basic living expenses such as food, clothing, and school supplies should be the responsibility of the parent, but even a 15 year old can be reasonably expected to contribute for special clothing items, events, and out-of-town trips, thus requiring a higher allowance. According to a Nickelodeon/ Yankelovich Youth Monitor survey, the average allowance for a 6-8 year old is $4.80 per week, a 9-11 year old is $7.00 per week, and a 12-17 year old is $16.60 a week. As this study shows, it is very reasonable to raise a child’s allowance as he or she gets older. Financial Advisor David McCurrach says that a good way to decide how much a child should receive as an allowance is to estimate how much you are currently spending to fulfill their requests and then set that amount as their allowance.
Another concern for parents is how often they should give their child an allowance. Is it better to give allowance on a weekly basis or a monthly basis? Well, most researchers agree that this depends on the age of the child. For most young children, long term goals are not really a strong point, so it would probably be best for them to receive a weekly allowance. For older kids, however, a monthly allowance is better because it teaches them how to budget their money. If they spend their whole allowance in the first week, it’s gone. Linda Boelter, a certified financial planner and family financial management specialist at the University of Wisconsin-Extension, puts it this way, "Teaching children to budget in their teen years helps save them from the consequences of not knowing how to budget as they get older. It's better to not be able to go to the movies for a couple of weeks when you're 16 than not being able to pay rent or a car payment when you're 25."
While all of these concerns are valid, the biggest debate around allowances for children is what to give an allowance for. Many parents base their children’s allowance on the amount of chores that they do, but child development experts say that this is generally not a good idea. David Riley, Bascom Professor of Human Ecology at the University of Wisconsin (Madison)- Extension puts it this way, “There are risks in linking allowances to chores. It sounds like a good idea at first because we want children to have experience actually working for money, but the problem is that it undercuts the idea of the family as a moral unit.” Kaitlyn Laurie, a child and adult psychotherapist, suggests giving children a basic allowance that is not linked to chores, but to spending responsibilities. Then, if the child would like to supplement their regular allowance, allow them to do extra chores to save money for more costly goals. Keep in mind that the purpose of an allowance is to teach children to manage their own money, while the purpose of chores is to contribute to the successful running of a household. You don’t want your son to say, “Sorry, Dad, Mr. Johnson next door offered to pay me more, so I’m going to mow his lawn instead of ours.”
Lastly, since the purpose of an allowance is to teach kids money management skills, an important thought to consider is how to get kids to save some of the money that they receive. First of all, it is important that you know your child’s personality and understand that even kids in the same household respond differently to money. Some kids want to hoard all of their money and you can’t get them to spend it if you try, while another kid will get a dollar and it burns a whole in his pocket. A good way to get children to save when they are younger is to require that they put a certain percent of their allowance toward a short-term goal. Bodnar says that this rewards them, but also teaches them that they don’t have to have everything right away. If children are saving for a very costly item, offer to match whatever they save. This gives them incentive to accumulate a certain balance and prevents them from giving up on their goal.
Most importantly, whatever schedule you decide to set for allowance, and whatever criteria you decide to base your child’s allowance on, be consistent. Be open about finances and talk to your kids about the stock market, savings options, budgeting, and other money matters. If children are going to learn to be financially stable adults, they have to have good role models in their parents. That way, when your child goes out in to the real world, he or she will be leaps and bounds ahead of the kids that just found out that dad’s wallet is closed and they are on their own.
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Reprinted with the permission of the University of Florida. © 2008 University of Florida.
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