Is an Allowance for Kids a Help or Hindrance?

What You MUST Know Before Giving an Allowance

allowance for kids

Is an allowance for kids a good idea? Not always. How an allowance is given determines whether your kids will become financially literate.

Research suggests that an allowance can be a double-edged sword and how it is given to kids really matters. Do it right and you can raise your children to become financially literate, responsible money managers. Do it wrong, and they can lack work ethic. The secret?

An Allowance for Kids Is ONLY GOOD when…

According to research reviewed by financial economist, Dr. Lewis Mandell, youth who receive a regular allowance from parents, regardless of doing any work, score lower on financial literacy and are more likely to be “slackers” than youth who don’t receive an allowance.  

However, additional studies reveal that many parents are simply giving kids pocket money without training them how to use it. Therefore, an allowance for kids is ONLY useful when the family discusses money and financial decisions together. Also, kids need to have repeated exposure to managing money to develop financial skills (just like learning math).

(Source: Mandell, Lewis, Ph.D. "Child Allowances - Beneficial or Harmful,". 2013, www.lewismandell.com).

So, in a nutshell:

What You Must Know Before Giving an Allowance to Kids

An allowance for kids is only useful when (1) parents take the time to explain financial concepts about money, and (2) kids get repeated experience in managing money. Otherwise, you may be setting up your child to take money for granted, especially if the allowance is simply pocket money or a bribe.


The Purpose of an Allowance

The intent of providing an allowance should be to….teach financial literacy! The following money lessons should go hand in hand with giving an allowance:

• Real-world practice with money

• Sound money management skills (how to spend, save and give). 

• Goal setting and budgeting!!!

Common Questions on Providing an Allowance for Kids

If you want to learn how to use an allowance to teach children about money, here are some good tips on how to do it well.

When is your kid ready for an allowance?

It depends on maturity level. Begin with simple activities for preschoolers. Give them coins at a vending machine to introduce the idea of exchange or trading money for something. School-aged kids can better understand principles like saving, spending and giving. 

How much should I give to start? 

Gail Ox Valade, author of Money Smart Kids, recommends matching a child's age with the amount of allowance and increasing this by a dollar at each birthday.

The amount you give can be adjusted according to what you can afford, what other kids are receiving or where you live.

With a set weekly amount that is capped, encourage your child to look for other ways to increase her income (apart from simply saving), to reach her goals faster.

How often should I give an allowance?

A weekly allowance is best for establishing regular habits. 

Choose the same day as “allowance” day each week. It’s easier to remember. It also provides you more opportunities to talk about money. Additionally, it helps your child create regular habits and get excited enough about money. Waiting 2 weeks may be a little too long and the impact of money management lessons can be lost.

Should I tie allowance to grades?

No. Most money experts don’t recommend using money as a reward for grades. The purpose of money is intended to teach money management behaviors, not as an external incentive to perform at school. A desire to perform well should be intrinsic.

Should I tie allowance to chores?

There are two schools of thought when it comes to chores. Some families will use money as a reward for completing chores. The latter believe chores are expected, as in the real world – adults don’t get paid for these responsibilities.

I tend to side with the latter group. An allowance for kids should not be tied to chores. As children are members of a family unit, they should share in the responsibility of daily chores. The risk here, especially for younger children, is that they may not do chores unless you pay them.

Defining additional jobs

If my children perform tasks over and above their regular duties, I will reward them with extra money – this can be considered a “job.” For instance, one time I asked my daughter to sort out all the pens and felts that no longer work, and to sharpen all the pencils and pencil crayons that were dull. It was a big job for a 6 yr old. I paid her $3 for this job, which encouraged her to look for more work.

Money Rulz

Set ground rules. Before starting allowance, don’t be afraid to revisit these rules if you or your kid slide off track.

Actively support your kid’s financial education. Use every opportunity with the allowance to teach your child about money. When your kid spends all her money on an impulse buy and then doesn’t have enough for the item she really wants, ask her what she learned and what she would do differently next time.

Have fun! An allowance for kids can be a great opportunity for financial literacy. So encourage a positive, fun learning environment where every mistake can become a non-stressful money lesson together.

› Kids Allowance