by Fred Provenzano, Ph.D., NCSP, University of Washington
and Janet Bodnar, Senior Editor, Kiplinger’s Personal Finance Magazine
In these times of great discretionary spending, the responsible management of money is one of the most important skills needed for successful adulthood. No matter how much or how little money your children earn as adults, they will need to know how to live within their means to avoid money problems. An allowance gives your children experience with managing money, setting spending priorities, and budgeting for expensive items. It not only helps them to appreciate the power of money, but also the limits and consequences of fiscal behavior.
When Should My Children Begin to Receive an Allowance?
Your child needs to be old enough for money to be meaningful (or, as one parent put it, old enough not to eat it!). Children should be aware that items in stores need to be purchased and that money is needed to buy them. They should be able to recognize different coins and know coin values, and should have basic counting skills. These skills are usually emerging by about the age of 5 or 6.
How Much Allowance is Enough, But Not Too Much?
“Enough so that your children can squander it, but not so much that you’ll be upset when they do,” advises Janet Bodnar, who also writes “Ask Dr. Tightwad,” a column about kids and money that’s syndicated by the New York Times. That is, the children should receive enough to make some meaningful decisions about what is important to them, but they shouldn’t get more than they’re comfortably able to manage. Research shows that, while children from higher-income families are more likely to receive an allowance, they don’t receive a higher allowance than other children. Youth Monitor, a syndicated service of Nickelodeon and Yankelovich Clancy Shulman, surveyed students nationally about the allowance they received, and found the following 1996 average weekly allowances:
What Should the Allowance Cover?
That depends on the age and maturity of your children, the tasks you want to entrust to them, and the financial values you want to encourage. Young children can manage “budgeting” for toys or discretionary items, but children may need to be about 10 to 12 before they are ready to budget for a week of school lunches. Middle teens (15 or 16 and older) may be prepared to budget for their own clothes. And, if you want to instill the values of charitable giving and long-term saving for major items such as a car or a college education, your allowance structure and amount will need to take this into account. Make a list of your child’s expected monthly expenses (including investments and donations), as well as sources of income (allowance, gifts, work for pay) to see if they’re in sync.
Should Allowance Be Tied to Completion of Chores?
It is important for children to learn to earn money. After all, in the real world, work produces earnings. However, many parents feel that chores are the children’s contribution to the maintenance of the family and home, and there should be no pay for these tasks. It seems less complicated and cleaner to keep allowance and chores separate. Differentiate between which jobs are not paid but rather are expected to be done to help the family, and which jobs may be done to earn extra money in addition to allowance. If chores are frequently not completed, and you’re tempted to withhold allowance, or if you do tie allowance to chore completion, see below. ????? ???????????
Should I Withhold Allowance as a Punishment?
This is likely to come up in one of three types of situations:
1.?? Your arrangement says that allowance is earned by completing chores, but your child didn’t complete all the work. In this case, a pre-determined fee schedule would let you both know how much each chore is “worth.” Some parents use an “all or nothing” arrangement: a child has to complete all chores to earn any allowance. In either situation, however, you can run into the problem of a child who decides that s/he doesn’t need his or her allowance that week, and so declines to perform the work. (This is another argument for keeping chores and allowance separate.)
- ? You’re upset with your child’s misbehavior unrelated to chores or to any monetary damage (example: staying out past curfew). You withhold allowance to try to impress on your child how much that behavior upsets you. In this case, withholding allowance will confuse the rules about your allowance arrangement and may seem unjust to your child. It’s best to look for some other, more relevant, consequence for the behavior that will seem to fit the transgression. In the case of staying out past curfew, for example, the child might be grounded for a period of time.
- ? Your child owes you money, possibly because he or she has borrowed money or has broken something that needs to be fixed or replaced. In these situations, it’s best to pay the allowance according to your regular arrangements, and then have your child pay back whatever is owed to you. This works best for two reasons. First, when you pay the allowance, you’re demonstrating your fiscal responsibility and sending the message that you can be trusted to keep your end of the deal. Second, when your child reimburses you, s/he is also practicing responsible behavior by paying the debt. It feels more real when actual money changes hands.
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Your local bank. Many banks have information on saving for kids, and officers who work specifically with children’s finances. Or, contact Denver’s Young Americans Bank at (303) 321-2265. The bank offers mail- in savings and checking accounts, credit cards and loans for children and teenagers.
Bodnar, Janet (1997). Dr. Tightwad’s Money-Smart Kids. Washington, D.C.: Kiplinger/Times Business. Addresses a wide range of topics regarding children and money, including allowance, investing, collecting, jobs for teens and paying for college. Very interesting and fun to read, with loads of practical ideas and answers to parents’ most commonly-asked questions.
Godfrey, Neale (1991). The Kids’ Money Book. New York: Scholastic, Inc. This book is written for intermediate-age students, gives a history of money, and explains banking, credit and investing in terms that children (and adults) can understand.
Zillions: Consumer Reports for Kids. Subscription Dept., P.O. Box 53029, Boulder, CO 80322; 800- 234-1645. This magazine is the flashy and lively children’s version of the popular Consumer Reports magazine. It provides information about products for children as well as articles on financial topics.
? 1998 National Association of School Psychologists, 4340 East West Highway, Suite 402, Bethesda MD 20814 phone 301-657-0270.