The word allowance tends to conjure up two images: a parent handing over money with no strings attached or a child toiling for a family paycheck. Up flashes a third image: confused parent wondering which path to choose.
Never fear, there is a method that works for both sides of the allowance coin-toss question. “I like thinking of allowance as commission. Money comes from work; it doesn’t come from mom and dad’s back pocket,” says Rachel Cruze, who cowrote Smart Money Smart Kids: Raising the Next Generation to Win with Money with her father.
Other experts believe chores are about being part of a family and allowance should not be tied to chores. “They say it takes a village [to raise children] and that village includes our kids. I like kids to know that running a household is not something you get paid for: This is daily life,” says Sarina Behar Natkin, a parent educator and cofounder of GROW Parenting.
Chores also show we care for one another while allowance is a teaching tool, says Ron Lieber, author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. “Money is no different than a musical instrument. We want our kids to practice at it. They don’t even need to excel at it. We just want them to feel better about money and do okay at it even if they don’t master it,” he says.
Allowance as graham crackers? When to start, how allowance evolves
Whether or not you link chores to allowance, you can start giving allowance to a child as young as age two or three. “You can give a child 5 pennies or a nickel. Like having a young child carry her plate to the sink before she can wash dishes, she is getting used to the idea of money before she will understand it,” says Natkin.
Jim Fay, the founder of Love and Logic, says a friend gave his son an allowance of graham crackers at age 4. “Little Freddy was given a box for the week and at first he ate all of them on day one. It wasn’t long before he had 7 piles of graham crackers in the cupboard for the week. When he had money to deal with by age 6 or 7, he had a pretty good idea that when it’s gone, it’s gone,” says Fay.
If you attach chores to allowance, Cruze recommends keeping some chores as unpaid that are considered as contributing to the family, say mealtime tasks from setting the table to loading the dishwasher. For young children, paid chores should result in immediate payment. “If a 4-year old helps clean up their room, give them a high five and a word of affirmation and instantly pay him when he completes that chore,” she says.
Parcel out a little money each week and have your child place some money in a spend jar, some in a save jar and some in a share jar for giving money to those who need it more than they do.
Between ages 6 and 13, Cruze recommends listing chores on a chart and once a week you pay for the chores completed on that chart. She believes being age 14 changes the allowance rules: don’t pay for household chores anymore and any money they make comes from working outside of the home.
Financial writer Lieber thinks a great time to start allowance is when they lose their first tooth because it’s often the first time they are given money that belongs to them. Since it’s usually not much money, they immediately want more money that adds up to buying power. “Parcel out a little money each week and have your child place some money in a spend jar, some in a save jar and some in a share jar for giving money to those who need it more than they do.” says Lieber.
The spend-save-share idea was the genesis for Seattle’s own Moonjar company, which sells jars made for this purpose. “Not only are jars great visual cues for good habits, they represent character traits that are the opposite of spoiled. It’s save versus instant gratification, while the spend jar is about modesty and thrift and the give jar signals generosity and gratitude,” says Lieber.
He advocates turning over larger amounts of money around age 9 or ten, and says some parents start only paying for what their children need versus what their children want around this age. “There’s no more dessert when you go out for dinner, and no more souvenirs on vacation. Kids make their own decisions and tradeoffs for what they want,” says Lieber.
Through allowance, we are helping kids step into more adult shoes as they grow because as adults we make dozens of monetary decisions every day, says Lieber. One way to do this is with a clothing allowance that covers a few months at first and then grows to cover an entire school year's worth of outfits.
“In my book Millionaire Babies or Bankrupt Brats, I talk about two girls who received the same clothing allowance. One girls gets one very beautiful outfit while the other girl went to a store like Ross Dress for Less and purchased outfit after outfit. You can imagine there was better use of money the next time. Think of it this way: the best savers we have in America are those who went through the Great Depression. Kids should go through the Great Depression over and over again but it should only last for a week or so,” says Fay.
Wants versus needs, instant gratification vs. patience
With fun thought experiments, allowance allows for discussion about your family’s values around wants and needs. In The Opposite of Spoiled, Lieber recommends putting a huge sheet of paper on the wall and splitting it in two with wants and needs columns. Leave it there and everyone fills it in whenever they have the urge to do so.
“In every category of spending, we should be having conversations. When it comes to clothing, maybe you are an Old Navy underwear family ... but when it comes to outerwear, you’re an REI family because you do a lot of hiking and camping. I don’t think there are any right or wrong answers, the only bad rule about spending is the one not explained,” says Lieber.
And there’s no need to think you missed the allowance learning experience if your kids are already teenagers. “It’s never too late to learn valuable life skills and there’s still time to teach them great financial management skills before they leave for college,” says Natkin.
Lieber adds a sobering note to the benefits side of giving your kids allowance. “We are getting them ready for this moment: the decision between, say, the UW at $25,000 and Reed at $65,000 or Berkeley at $50,000. If you are not in the habit of patience and delayed gratification, it is going to be that much harder for our kids to ever retire. We want [them] to see the jars in front of them, feel the temptation and spend it and then resist spending so they can achieve a medium-term and a long-term financial goal while they still live in our house,” says Lieber.