There is a simple reason as to why we should give our children an allowance. That is, to learn to manage money, you need some money. Theory is all well and good, but just as you can’t learn to ride a bike by reading about it, you can’t manage money through oratory lessons alone. So, ironically, in theory, with kids practicing with real money, they get to experience what it’s like to save, delaying gratification for something greater later on, prioritizing, and so on.
But when should we start?
Typically, around 5 years of age is the norm, with some starting early, and many starting much later.
There’s no magic starting time, says Kristan Leatherman, coauthor of Millionaire Babies or Bankrupt Brats? Love and Logic Solutions to Teaching Kids about Money. “The best time is when your child begins to understand that money can buy him things he wants.” -babycenter.com
A common formula? 50c to a dollar for each year of your child’s life. So if you have a 5 year old, between $2.50 and $5 a week. Of course, this all depends on your family’s financial situation and other factors.
“A formula has certain advantages over a flat amount. The kids get an automatic raise on their birthdays, so it takes away the question of when to increase the allowance, and it cuts out sibling arguments, because the younger kid can understand why the older kid gets more.” – Credit union market manager Mark Hodowanic.
Should You Tie Allowance to Chores?
The Case for Tying Allowance To Chores
“Most parents believe that an allowance should be connected to chores. In fact, a survey conducted by T. Rowe Price found that 86% of parents think kids should only get paid if they help out around the house. It definitely makes intuitive sense to tie allowance to chores because it teaches kids how money works in the real world — if you want to get paid, you have to work. The parents in the allowance-for-chores camp argue that if you simply give your child money, they’ll become spoiled and entitled. If you want to teach your children a solid work ethic, the thinking goes, you need to show them that rewards only come to those who earn them.” – www.artofmanliness.com
The Case for Giving an Allowance Not Contingent on Chores
“The parents and financial experts in the no-strings-attached allowance camp argue that the main focus of allowance shouldn’t be work, but rather teaching children about how to manage money and save for long-term goals. When parents tie allowance to chores, they often just focus on their children getting their tasks done, instead of on managing the money they get in return.” – www.artofmanliness.com
There is also the argument here that this teaches your children on to contribute to the family if you’re getting paid to do it. This could end up with
Dad: “Billy, please take out the trash.”
Billy: “Sure thing, Daddy. That’ll be five bucks”.
A compromise between the two camps seems to work best.
What about a bank?
“Financial experts generally agree that when kids are young, it’s better that they get paid in cash and keep their money in a physical container that they can see. Putting the money in a bank makes it too ethereal for tiny brains that are still working to understand abstractions. The jar full of cash is much easier for them to grasp than a digital number in some bank account. ” – www.artofmanliness.com