Giving children an allowance can help them build better spending and saving habits

By Jean Chatzky* It’s hard to learn the true value of money without actually having some money to save and spend. That’s why setting aside a specific amount each week as an allowance for your children can be a good way to show them, among other things, that cash is a limited resource.

Parents in the U.S., on average, give their children an allowance of about $30 a week, according to a survey from the American Institute of CPAs. Most of the funds funneled to kids were used for outings with friends, digital devices and downloads, and toys.

While that may seem like a lot to some, plenty of parents expect their children to use the money to cover things they might otherwise pay for. This by the way, is the best and most useful way to give an allowance. Because a miraculous thing happens when children are forced to spend their own money. Snap decisions on must-haves items transition to a much more thoughtful buying process. Kids tend to think long and hard before parting with their own money, instead of yours.

Here’s how to make an allowance system work for your family:

Start when school starts

Typically, kindergarten or first grade is the right time to begin an allowance. By this time, your child will likely have opportunities at school in the form of book sales, candy carts and other treat days where he or she will want money to spend. Little ones will also have plenty of exposure, through you and their grandparents, of other places to shop both in person and online. Supermarkets, dollar stores and even Amazon all tend to have things your child will be able to afford.

Settle on the right amount

If you are unsure of a fair amount to start with, crowd source it through your social networks. Ask your friends and neighbors to see how much they’re giving. It’s a good idea to make sure your child doesn’t receive much more or much less than their peers. Perhaps the best way to decide how much money to give your child each week is to determine what you expect that money to cover. Will they pay for their own school lunches and snacks? Gifts for friends? (In general, when they are young start with a small sum and a small list of things they have to pay for, then increase it as they age.)

Get it in writing

Make a list, figure out how much those items cost and then share that information with your kids. The list of what your children are expected to pay for should be fairly simple in grade school and get more detailed as kids get older. You can start with items like Goldfish snacks and Pokemon cards. Think about wants and not needs. Start to pay closer attention to what you are shelling out money for: video game downloads, Lego blocks, tiny stuffed animals with giant eyes, you get the idea. Over time, add to the list of what they need to pay for: concert tickets, gifts for friends and family, budget-busting designer clothes.

Prepare for some negotiation

As years go by, there will likely come a time when your child asks for a larger allowance. Thoughtfully evaluate the request and decide if you are willing to give a little more. Before making a decision, ask your child to give you several reasons they need or want more money. By doing this, you are teaching your children real life skills that will help them later when they ask for a raise at work. It’s also realistic to give a child a few dollars more a week for every birthday.

Help them earn more

So, what happens when your child wants a $100 pair of designer leggings or a $300 Nintendo Switch on a $15 a week allowance? This is where the lesson of delayed gratification comes in. Things really mean more when you have to wait for them. Here, you have a few options. You can start a mom and pop 401(k) at home and match each dollar saved with another of your own. That will help your child reach the goal faster and be more likely to see it through. You can also offer your kids extra cash for extra work. You could give them $5 or $10 to wash the car or $20 to mow the lawn, depending on the size of your lot. If you go the extra job route, pace the cash flow and don’t make the payoff too fast. After all, you want to groom a saver who appreciates what they have.

*This guest article is from the “Your Money Blog” in Mid Oregon’s Digital Banking Credit Savvy resource. It is made possible by SavvyMoney. “Five steps to raising money smart kids” by Jean Chatzky with Casandra Andrews was published in August 2021.