I am embarking on an allowance journey with my five and seven year old kiddos. Is this the magic age to start an allowance? No. Has my seven year old successfully worn me down into accepting that this is the age we are starting? Yes.
It’s no surprise that I spend a lot of time thinking about money and, more importantly, the goals behind the money. An allowance for a child is no different in that it is a tool in service of a goal.
So, what is that goal?
In my opinion, an allowance has one clear purpose – to teach kids to be financially responsible. It normalizes talking about money, which can help set kids up for success as they interact with money over the course of their lives.
According to a survey by Empower, 62% of Americans don’t talk about money. That’s a lot of people who might not know what it means to be offered a 401(k) at work, how much money they should ask for in their first job, or how to talk with a significant other about spending styles.
An allowance can be the first, powerful step to helping your kids land on their feet financially. Here is the path I plan on taking.
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Don’t Tie Allowances to Chores
I’m going to start with the most controversial opinion. I don’t want the allowance to be transactional for my kids. Make no mistake, my kids will be doing chores. But I want them to do chores because those are tasks that contribute to our household functioning well. As every grown up knows, no one is going to pay you for taking out your trash when you move into your own house. We are all part of this family and need to contribute.
Many studies show that tying incentives to tasks can undermine intrinsic motivation (in adults and kids, frankly. Author Daniel Pink knows what I’m talking about). Kids have a natural desire to be helpful, and by tying their allowance to various tasks, we actually undermine that natural intrinsic motivation that they are born with. While doing chores should be a part of every growing child’s schedule, tying it to allowance might undermine your goal.
Here’s what I’ll be trying instead.
Adopt the Spend, Save, and Give Approach
When we first started talking about allowance, my oldest could not wait to spend all of his allowance on baseball cards and Beyblade spinners (kids these days, am I right? Also, what is a Beyblade?) What this tells me is that the natural instinct to spend tends to be an easy concept for our 21st century consumer-spending saturated kids to understand – money lets me buy things, so I want more money, thus I can have more things.
But responsible money usage involves balance. Saving for the future (or the proverbial rainy day) and cultivating a sense of generosity are key ideas that an allowance can help foster early. Encouraging kids to use jars or envelopes to track money in Spend/Save/Give buckets is a great system. Engaging conversations around how much “should” go to spending vs. the other two buckets should lead to some really rich conversations.
Increase the Amount (and Responsibility) Over Time
I’ll be starting with a cash system because I think kids learn more when they can touch and visualize what they are doing. We’ll do $1-2 per year of age as a start (so, my 5 year old will get $5-10 and my 7 year old will get $7-14). As kids get older and the financial concepts that they learn about start gaining traction, increasing their allowance makes sense.
Once kids get to high school (or even middle school), increasing the amount while also increasing what they are financially responsible is a great approach. You may give them quite a bit more for allowance, but that can cover things like school clothes, shoes, Starbucks, school supplies, etc. The goal is that you are adding expenses to them each year that by their senior year of high school, they are running their own mini budget because they are having to make tradeoffs between clothes, meals out with friends, haircuts, etc. This is a beginner budget system that will serve your kids as they get older.
The clients I work with who started having these conversations and sharing responsibilities with their kids early on have had tremendous success in those kids becoming financially responsible much earlier. They are able to try on financial concepts like budgeting before they are dealing with things like rent, cell phone bills, and renters insurance.
Make a Game of It
There are SO many neat games out there that can teach kids a lot about the concept of money. My personal favorites are The Allowance Game and Cash Flow for Kids. Both of these games (and I know there are others) provide a great intro to money, with the former being simpler and the latter being a bit more advanced.
The Allowance Game aims to get kids to save to a certain dollar amount, while also encountering the things that both add to ones allowance (say, a gift from grandma) and things that take away (a new video game). Cash Flow for Kids takes it beyond saving and into the world of investing, passive income, and managing total costs.
Gamifying anything can help make something that might not always get the most exciting reputation fun! And hey, a lot of the takeaways are not a bad reminder for us adults.
It’s All About the Conversation
You don’t need to be a finance whiz to have success with an allowance program. Asking your kids good questions and responding with thoughtful replies does more than you can imagine, regardless of having “the right answer” (which, by the way, doesn’t exist, so you can take the pressure off yourself).
“Why should I save?” and “What is the “Give” jar for?” are fabulous conversation starters. “How much money do you make?” is a question that you will almost certainly get, and before you get flustered, redirecting to the kids is a fantastic approach. A simple “Why do you ask?” will send you off to the races as you first get started.
I am really looking forward to starting the allowance adventure with my kids and seeing how each of them responds to it. I fully expect to make changes along the way, and will report back with what I’ve learned.
Eventually I’ll introduce the concept of investing (eek, I can’t wait!), engage in community service together to show the value of the “give”, and hopefully empower my children to help me make their allowance program more effective.
Mostly, I am so excited that simply talking about money will be commonplace in our house. (Hey, shouldn’t parents get an allowance for that?!)
Sources:
“62% of Americans don’t talk about money according to new Empower research, and their silence may come at a cost” Empower. 19 April, 2023. https://www.empower.com/press-center/americans-dont-talk-about-money-new-empower-research#:~:text=Over%20six%20in%2010%20(62,13%25)
Vanessa LoBue Ph.D. “Motivating Children Without Rewards.” Psychology Today. 4 June 2018. https://www.psychologytoday.com/us/blog/the-baby-scientist/201806/motivating-children-without-rewards
The Allowance Game. Lakeshore. https://www.lakeshorelearning.com/products/games/board-dice-games/the-allowance-gamesup-sup/p/LC1279/
CASHFLOW for Kids®. Rich Dad. https://www.richdad.com/products/cashflow-for-kids
