What are kids making these days? A good benchmark for your kid's allowance is a $1-$2 weekly multiplied by their age. A five-year-old in this scenario would earn $5 or $10 a week. If that is too steep for you, pick something that works within your budget. Keep in mind the more kids you have, the more you will have to pay and the dollars will always be increasing.
At what age should you start giving your kids an allowance? Five feels like the right age to me, but if you have several children or a more mature child, kids as young as three can grasp the concept of money. The important thing is that the child is mature enough to learn the lessons you are teaching by earning an allowance. I knew it was time for my daughter to transition to an allowance when she started asking questions about money. The tooth fairy's arrival really seemed to peak her interest and we used that opportunity to get started. Watch for signs of curiosity, it could be a comment from a car commercial - “Wow, that Wagoneer is a lot of money,” or comments such as “Is 100 a big number?” But why an allowance?
My husband and I disagree a little on chores for money. His comment is always, “Why are we paying our kids for things they should already be doing.” This is fair, and we actually do not monetize for basic responsibilities. However, the life skills allowance molds into my kids are important to me. It teaches kids that you need to work hard to earn a living. It helps teach fiscal responsibility. If they have their eyes on a particular toy, they need to learn to save. It instills the feeling of teamwork. We have shared chores in the house that everyone chips in on. For shared chores, we usually do not reward these with money, since we all have a stake in it. Shared chores are usually rewarded with IPAD/screen time or an extra 15 minutes of video game time. If they are simple shared tasks such as throwing trash away, it is just an expectation. A good example of a shared chore in our house is bringing in and putting away groceries. “Hey guys, Mom has a lot of groceries in the car. Let’s all help to get them unloaded, it will be done quickly and we can get to the park sooner.” I do like the balance of non-monetary rewards because it avoids the pitfall of your kids thinking they should be paid for everything. It also helps with the “chore strike”, when they would simply rather not do their chores and have no money. It's a good reminder they are still going to have chores to do but they are only opting out on the ones that earn them money and penalizing themselves. In our house, we have a chore chart and my kids earn their allowance by earning enough magnets on their chart that week. If you want to read out chore charts head over to this post.
Aside from shared chores, there are a couple of other chores/responsibilities we do not monetize. Good hygiene, doing homework, and getting good grades, are expectations, not a chore. I always try to monetize the chores that are a little bit extra such as making your bed. I also allow them to request an extra chore if they are trying to save up, I just make sure it's truly above and beyond so they do not expect to get paid for everything. As an example, my five year old organized all the plastic cutlery. She sorted them by color, and type (fork, spoon, knife) and then rubber banded them. It took her a good 15 minutes and she earned an extra dollar. Saved me time to do it and she seemed to enjoy it. Allowances can also help kids understand the meaning of fair. "They got more money, that's not fair." Remember that fair does not mean equal. If your six-year-old got a new bike for his birthday is it unfair that his one-year-old brother did not get one? Of course not, but sometimes we need to break down what fair actually means to kids. Fairness is also rooted in merit. It's fair that your 8-year-old is earning more allowance since their chores such as taking out the trash are more advanced than 6-year-old matching socks. Maybe your 15-year-old earned 30 min extra XBOX time, it would not be appropriate for your 5-year-old daughter who doesn't play XBOX to earn the same reward. Rewards are tailored to each kid's wants and likes and that does not mean it's "unfair."
Other Lessons in Allowance
A couple of other lessons we tie into allowance spend. There are others that are less fortunate than you. We require that 5% of their allowance money go to charity a year. Out of the $240 my daughter earned last year, she was required to use $12 on a charitable cause. We usually sponsor a child at Christmas from an Angel tree. It gives you their age, things they like, favorite stores, and clothing brands. No, her $12 does not cover the entire cost for someone less fortunate to have gifts at Christmas, but it usually will cover one item they want or need and I pitch in for the rest. My daughter loves wandering in target looking for an item that would bring someone else happiness. It also helps her shop for what others want, not what they think everyone wants. With that, they also use their allowance money to pick out Birthday presents and Christmas presents for their siblings. I usually hit the Dollar Store of Five Below for this, since I try to keep the target budget of $10 or lower. The first time I did this with my daughter, you could see it click in her head that all those birthday presents do not just come out of nowhere and she learned that $10 only goes so far. I also never allow them to fully spend what they have in their piggy bank. They should always have savings for a rainy day. Finally, we tax their earnings! Can't lose sight that big brother will come to collect your earnings. A $2 tax is collected each year from each kid, just to prove the point. We are still working on grasping this concept, “My $2 went where?"
Age up, Tech up!
As your kids get older, you will outgrow a chore chart and technology is definitely your friend. Companies like Greenlight make it easy to track and pay allowances in its app. The allowance is loaded onto a debit card for your child to use. Additionally, you can set spending limits and controls and earn rewards on savings. If your child loses the card you can switch it on and off. It also allows you to allocate a percentage of the allowance to savings and charity. My personal favorite is when they want something but don't have their card, you can take it out of their account immediately. After a free one-month trial it supports up to 5 kids for $4.99 a month. It automates the experience and takes one more thing off the busy parent's list. Below are some examples of the in-app functionality.
Greenlight reigns supreme in my book, but Busykid and FamZoo are also great sites to help teach financial literacy. If you do not need all the added app functionality that helps track chores etc, check with your local bank, they often have specific debit cards meant for young adults.
Wrap it up already!
Final words on allowances. Make sure you are consistent. You need to commit to making this a weekly activity. Us, we do it every Sunday morning. As many Sunday mornings of football are spent scrambling and asking “Have you set your lineup?” We have used the phrase for the chore chart line-up that is also set on Sundays. Additionally, make sure you are not bailing your kids out. If they did not budget accordingly or forgot to account for tax on an item, try to avoid pitching in the extra. It will reinforce that they need to save and won't always have mom or dad's purse or wallet to help them. One last piece of advice, as your kid ages, make sure to add more discretionary items to the list of things they need to pay for. For a six-year-old, it might be a cake pop from Starbucks, for a 15-year-old it might be a more premium hygiene/makeup item. Adding on small items they need to buy themselves will teach them that they need to budget and prioritize items based on want and need.
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