Do you think kids should get an allowance in 2024? Allowances are nothing new for kids, but I believe that many parents growing up missed valuable opportunities for furthering their child’s personal growth by not leveraging the use of allowance clearly and fairly.
As a kid, I never got a consistent allowance, so many of my financial literacy skills were delayed. For many American kids that become teenagers and adults, those financial literacy skills are often never learned.
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Money is a reality of every society. Understanding how money works and how to make it work for you is a core tenant of building a financially stable future. (If you are still learning money skills, sites like Amazon have endless books that can help you. Check out The Richest Man in Babylon as a start.)
How many adults do you know who have made one financial mistake after another and made a statement similar to; why don’t they teach this in school, or why didn’t my parents teach me this?
Real-world money decisions are not taught in school, and many parents don’t know proper money management themselves, so how can they be expected to teach their kids?
Well, I am no financial expert, having learned through mistakes and research, but I am happy to impart any knowledge that I’ve gained over the years. Perhaps teaching your kids about money will help them learn other important values along the way as well.
Today, however, is about the allowance for your kids and how my family has put it into practice with our kids at a young age.
How to Calculate Allowance for Kids
I believe that allowance calculation should take several factors into account before you just throw out a number that is too high, too low, or doesn’t allow for growth at a future point.
Here are the things that I feel best reflect a fair and useful allowance system in no particular order. Keep in mind the key is to allow this to grow over time from young ages to teens to young adults.
The Family’s Financial Situation
In no way should you jeopardize the stability of your family’s finances in order to give your children a big allowance. Learning financial skills is not an overnight or one-time thing; this is a long term commitment you are making to your kids at a young age.
It’s better to start lower and move up than to start higher and have to cut it down after some time.
The age of the child
It goes without saying that a very young child shouldn’t earn as much allowance as an older child. An older child has more experience, can be more helpful, and can accomplish more chores that help the family.
This also teaches your children how the world works and that the more knowledge and skill you develop, the more your time is worth. (Or kids are eligible for a “raise” once per year on their birthday.)
I have a 2-year-old girl and a 4-year-old boy, and my son does more activities and has more expected of him, so he is eligible for more allowance. However, as my daughter gets older, she then becomes eligible for what her brother was at her age if she is doing the same things.
What chores or responsibilities is your child expected to do to earn an allowance?
The expectations that surround your kids’ allowance should be clear from the get-go. If you are continually moving the goalposts or adding household chores, or changing the number instead of having a set amount, you will not create the life skills you want.
Instead, you might create children that see the financial world as a game they can’t win. That is not to say that deplorable behavior from a child in one facet cannot and should not negate positive behavior in everything else. As an example, my daughter doesn’t want to get out of diapers fully.
She is almost 2 1/2, and she is perfectly capable of it but is just being lazy. (Let’s be honest. lol) There have been times that she doesn’t want a diaper on and chooses to not tell us she needs to pee until she has already peed on herself and on the floor.
After giving her a warning and doing it again, she lost her allowance for the last two weeks. When my son gets his payout, she doesn’t get anything, and I remind her why. (We will see how well this works, so wish us luck.)
What do you want your child to use the money for?
If you want your kids to use their allowance for extracurricular activities and spending money, obviously 3 dollars per week won’t cut it.
You don’t want them to live an overly extravagant “lifestyle,” but they need to be able to earn the money they will need to cover the expenses you want to be covered.
How do you see the allowance system growing?
Plan for the future. This is a financial mistake that people of any age can make. They don’t look more than a couple of weeks or a couple of months down the road. We pay our kids an allowance each week, and if you get too aggressive, you might be dreading the next week.
For reference, my kids earn a possible allowance per week as follows:
- $1 for eating their food on their own (When they want to physically feed them, it’s a real nuisance)
- $1 for doing well in school (They are both in a Spanish emersion pre-school)
- $1 for trying hard in swimming class (They each go twice per week)
- $1 for brushing their teeth
- $1 for my 4-year-old son for existing and being older. Lol.
- $1 for my son during T-ball season as long as he finishes the practice/game and tries hard. (Our daughter will be eligible once she is old enough for T-ball)
When we are on vacation, and there is no swimming or school, the available allowance is reduced. My son has advised us that he thinks he is ready to do more chores, so he has started earning an extra dollar per week for taking the compost bags to the composter in the back yard.
As they get older and brushing their teeth or feeding themselves is just a given, then the rules will change, but they will also be made aware in advance.
As chores become a much more significant part of their allowance, they will know what to expect. The fact that my son has requested more chores (for more money) is really exciting, and I will keep you all posted.
Give an Allowance to Teach Them to be Broke
Being broke is a vital skill to learn, and it is best to learn it when the stakes are very low. Not being able to buy the toy you want or the new soccer cleats, or go to the water park with your friends because you didn’t budget properly is a very cheap lesson to learn.
Having late payments on a credit card, which means you can’t buy a house later, is a very expensive lesson. I want my kids to understand what it means to be broke.
There is almost no amount of money that someone can’t figure out how to spend or waste. There is a book called Billion Dollar Whale where the antagonist fleeces small governments of Billions. He personally spends hundreds of millions of dollars.
Keep in mind that there are not many actual Billionaires that just have hundreds of millions of dollars sitting around to waste. Literally, people can figure out ways to spend almost any amount of money.
Therefore it is vital to show them what it means to spend more than they need. Allow them to learn that being broke isn’t fun and that you aren’t going to bail them out.
On occasion, we will extend credit toward next week’s allowance if there is something they really want and have been saving for.
However, I always collect back what is owed, making them count it out to me. We pay allowance in cash so that they can see the money coming in and going. Kids at young ages don’t understand money they can’t physically see, so this makes it more real for them.
Part of not being broke is about making good decisions. If they want to earn their allowance, they need to make good choices. They can choose to act up in school, not try in swimming, or try to be sneaky and not brush their teeth, but there is a financial consequence in addition to whatever punishment they might get.
I want them to consider the multitude of potential outcomes of their decisions, yes, even as a 2 or 4-year-old.
In addition, the decisions they make extend to what they spend their money on. Should your children save their money for a bigger and better opportunity, or is the thing they want now really worth it?
All too often, parents do not spend the requisite time to help their kids make smart choices, so why not create a system that does it for you.
Money management is all about decisions and learning from the good and the bad. A credit card is not a bad thing, but the choices you make with it can be very bad or very good. Families are often run by people that are not good decision-makers and don’t know of different ways to do things.
If you can teach your children to make good decisions by 4 or 6 or 7 years old, you are setting them up for success. Parents, let’s focus on not just giving our kids an allowance, but provide them with the life skills that will be so much more valuable than a couple of dollars.
According to Investopedia, opportunity costs “…represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.”
When did you first learn what opportunity cost really meant? If you were anything like me, you were in high school economics, not when you were a small child making some money doing chores.
Many people learn it much later the hard way when they realize a significant life choice they made limits their options today.
By teaching our children to make good decisions as a rule of thumb, not as dumb luck, we give them the skills to weigh opportunities. As much as we like to tell them what to do, and as our parents told us exactly what to do, that does not prepare them for the future.
A healthy approach to weighing our decisions and understanding that one choice means other choices aren’t available is key. The average person does not understand this reality until it’s too late, but your kids will not be average.
Tool for Parental Control
Let’s be honest, if we can control our kids without them thinking we are controlling them, we get a big W in the win column. Half of parenting is keeping our kids from doing stupid stuff, but allowance is a great tool to keep them on point.
We can get chores done with no complaints and keep the crazy boys and girls from destroying the house (or at least cleaning it up after they do).
Take my word for it, even at age 2, our kids understand so much at a basic level. If we treat them how we want them to act, they will often do just that.
Reduced Pressure to Buy and Spend your Money
Kids are the best salespeople that have ever existed. They convince you to turn your life upside down to care for a tiny person that one day might tell you how they hate you and to pay for the pleasure to do it.
That is pretty phenomenal, so when they convince us to buy toys or games, or candy or whatever else they don’t really need, I can’t blame any parent.
But as a parent, if you allow this to go unabated, your money flies out the door, and your children won’t really appreciate it anyway.
That’s why an allowance structure has the benefit of taking the pressure off of you to foot the bill for whatever interest they have at the moment.
When your child earns allowance, you know what the new response is? How much money do you have? This costs blank dollars; you have enough money.
Are you sure you want to spend blank dollars on this? Or. This costs blank dollars; you don’t have enough money. Do you want to keep saving your money until you have enough?
The conversation ends much quicker and easier when they know the power is in their hands. As they get older and become teens, they will make requests for allowance raises or special exceptions, and those are decisions you can make together instead of feeling pressured or guilted into it.
Having some money in your pocket brings a sense of responsibility, confidence, and comfort with making choices at an age that average children cannot match.
You want your kids to manage and help with household responsibilities, give them a sense of independence and control over their path. As adults at 18 years old, we have a lot of rights we get to exercise but no knowledge about what to do with them.
Set your kids up by teaching them day in and day out how to be accountable and responsible and that hard work matters. A simple allowance for kids can have a massive impact on their development and money skills for life. As far as a user experience, allowance for kids has a pretty great one.
Often forgotten in many parts of modern culture is the reinforcement of positive behavior. Most of the systems we deal with as adults are punitive if we do the wrong thing, so people learn to not take risks and not go beyond what they know won’t get them in trouble.
Allowance for your kids starts to teach them that there are rewards for doing the right things in terms of money, praise, skills, etc. In the real world, employment evaluations are often focused on what you need to do better, and sometimes what you’re doing well falls through the cracks. It’s human nature that if you do something that you think is positive, but nobody seems to care, you stop doing it.
Giving kids an allowance shows them that we value the good behaviors, and those strong behaviors become habits. Positive habits create great students, leaders, thinkers, inventors, business owners, and people who make a mark. Of course, money matters are only a part of raising kids, but it creates a structure that you can build on as your kids’ age.
It is rare that parents raise their kids with the idea of turning out average adults with average skills, right? So, if we want the products of our family to be better than average, better than us, and to have the right approach to life for happiness and success, we have to set them up for that success.
I am certainly no voice of truth, and experts all have different views, but I am focused on solutions that deal with reality on the ground. I hope that my bit of work can help you prepare your own kids for the future and make your life simpler.