The argument for allowance goes something like this: You get better at spelling, multiplication, basketball, and cooking by practicing, which is also the case with handling money. Few of us live on farms where there is an abundance of work to be regularly completed; even jobs outside the family home for older youth are harder to come by these days, so allowances are seen as one of the only ways left for kids to practice earning, budgeting, and spending. However, allowances only help children develop money smarts if they are delivered with a clearly communicated structure.
Basic best practice: Give a base amount kids can add to by doing more.
From everything we have lived, read, and heard, the most effective approach seems to be providing your kids with a basic amount of spending money, untied to chores, but giving them the opportunity to top that amount up by completing non-regularly occurring tasks, such as seasonal yard work or larger home maintenance projects.
Parents aren’t paid for doing laundry, making meals, or driving someone to dance class, and you want your kids to know that some things are just expected of them because that’s what it is to be part of a family. But people who work extra hard and go above and beyond the normal call of duty are typically rewarded, and you want your kids to learn that lesson as well.
Determining what your child’s allowance is to be used for will typically dictate how much you plan to give them. Assuming they understand the money they receive every Saturday morning should not be spent on a trip to the candy store rarely works. For example, if you want your kids to save and/or donate part of their allowance, you need to tell them.
Three broad decisions need to be made, regardless of the recipient’s age.
Age-specific guidelines for parents to consider when establishing allowance will be split into two future posts. Still, there are three broad decisions to make and communicate, regardless of age:
- Decide what allowance is to be given and used for, e.g., given for set chores or not, and to be spent on candy, savings, lunches, and team fees…or not.
- Decide how the allowance will be distributed and stored, e.g., using envelopes, jars, automatic bank deposits, or virtual tools.
- Decide when current practices will be assessed for any required adjustments.
Mistakes are invaluable learning opportunities.
Kids won’t always spend their allowance exactly as suggested, which is perfect because that is typically when young people really learn about the trade-offs adults have to make every month. Only when they spend too much on licorice or lattes and then don’t have enough for a special event at school or a t-shirt celebrating their favorite sports team or musical artist will they think twice before spending on quickly consumed items again, which is exactly what you want.
Encourage the use of the DIMS-DOES IT MAKE SENSE?® SCORE® Calculator.
Naturally, we believe the easy way for kids to make sure they spend their allowance as wisely as possible is to calculate the DIMS-DOES IT MAKE SENSE?® SCORE for a possible purchase. The DIMS SCORE® Calculator helps kids quickly answer all the questions parents normally want to be addressed before agreeing to spend money. Working on a problem that matters to youth in real-time: “Should I buy this item or experience?”, makes learning about money immediately helpful.
But we’re social entrepreneurs.
However, as social entrepreneurs, we are method agnostic. We consider any opportunity to discuss spending with a plan a good one.
You could just give your kids pocket money every weekend or when they ask for it without guidelines or expectations. Unfortunately, our research and experience tell us that this does nothing to help prepare them for their futures as post-secondary students, employees, spouses, homeowners, or parents. Some people have even found that when you simply hand money over, you might as well light it on fire. At Gifting Sense, we’d rather families put a small plan in place and avoid getting burned.
To learn more about our approach to early financial education, please click on the blue or green buttons below.
Allowance For Parents Gifts & Holidays
