September 13, 2022
The topic of allowances may seem simple but it can get pretty complicated and fast. If your child is about to exit toddlerhood, you can bet the questions and curiosity about money will begin — and negotiations won’t be far behind.
If you’re feeling apprehensive as you navigate this next stage, rest assured that you’re not alone. Plenty of parents have questions about age appropriateness, and most parents have no idea what the going rate is. (FYI, it’s not what you earned when you were a kid.)
Allowances are an early opportunity to teach kids valuable lessons on financial literacy. When done right, it teaches them to think about choices, alternatives and consequences. Allowances are a big deal to kids because they’re usually their first exposure to money and can shape their attitudes around money.
Allowances are also an excellent way to boost motivation. Let’s face it: While every parent would rejoice if kids were intrinsically motivated to do chores and housework, that’s not very likely. That’s where allowance comes in. Incentives like allowance can give kids that extra push, teach them about responsibility, and foster intrinsic motivation in the long run.
Financial experts recommend that parents should start giving their kids an allowance once they understand that money is necessary to purchase things. For most kids, this is around age 5 years old.
In his book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart with Money, New York Times money columnist Ron Leiber says, “kids who have gotten wise to the power of pestering parents to buy things are ready.” Other indicators, he says, include children who can count or ask questions about money and how much things cost.
Once parents decide to give allowances, one of the first questions to come up is “how much?” And while there are no hard-and-fast rules, a good rule of thumb is to give your child £0.50 to £1 for every year of age, per week. So, If your child is 8 years old, that would look like £4 to £8 per week.
We should also note that allowances don’t always have to be about money. Apps like Prickly Bear, which rewards kids with virtual currency for learning, can be a great alternative to cold hard cash.
If you’re new to giving your kids an allowance, here are some best practices:
It’s important to introduce the concept of money early. In fact, waiting until they’re older may be counterintuitive to the lesson. Ideally, you want to start allowances and impart those lessons early, before negative feelings and bad habits around money have a chance to take root.
Allowances should never be used as punishment. Tying allowances up with disciplinary action could make your child feel anxious about money and lead to a lifetime of bad decisions in their financial life, again defeating the purpose of the lesson.
Very often, parents give their kids a weekly allowance and think little else of the moment beyond the transaction. While pairing every allowance payment with a lecture isn’t fun for anyone, you may want to look for teachable moments and capitalise on those instead.
Think about moments where your child has their eye on something that matters to them now but probably won’t matter a month from now. This would be an excellent opportunity to talk to your child about making good choices and buyer’s remorse.
Kids will be kids, and inevitably, they’re going to want something beyond their means. When that happens, parents should resist the urge to provide floater loans and bail them out. Your little one will never learn good money management if you swoop in to save them every time.
Once you decide on your schedule for allowance payments, be sure to keep it consistent. Just as you receive a regular paycheck from your employer, kids should come to expect their allowance in the same way. Consistency allows your child to stay organised when managing their money.
Financial literacy is a crucial life skill, and giving your child an allowance is an excellent way to impart those lessons early. The key to your kid’s success is keeping it positive, capitalizing on teachable moments and resisting the urge to bail them out when they’re in trouble.