I’ve written in the past about our allowance system, so naturally Bankrate’s recent article about allowances for kids caught my eye. Since I’m into this sort of thing, I thought I’d break the article down and throw in my two cents (no pun intended) as we go along. Here goes…
How young is too young? The article suggests that you start sometime between ages 3 and 5, and I agree. In fact, we start our kids when they turn 3. At that point, they’re old enough to be interested in money, so why not?
How much is too much? The article suggests making “an informed decision based on what you expect your child to do with his or her allowance.” In our case, we’ve been paying out a weekly allowance of $0.50 per year of age, and it’s been working well. This amount seems to strike a balance between making our kids save up for a purchase and putting things out of reach.
Tying allowances to chores. The article suggests that you keep allowance separate from chores, and I agree. We don’t explicitly do this, because my wife and I believe that there are certain things that our kids need to be doing whether or not they’re being paid — rather, they’re a part of being a member of our family. When our kids go above and beyond the normal call of duty, however, we will offer them a bit of ‘supplemental’ income.
Freedom within limits. Since the whole point of giving kids an allowance is to teach them to handle money, it’s important to let them make their own decisions — and their own mistakes! Does this mean that we give our kids carte blanche when it comes to spending their allowance? No, of course not. First of all, they have to separate it into three pots — 10% goes to the charity of their choice, 30% goes into their long-term savings account, and 60% is available for spending.
We also set limits as to what is (and isn’t) appropriate, and we offer guidance as to why a particular expenditure is (or isn’t) a good decision. But, for the most part, we try to leave the final decisions up to them.