What an Allowance Allows

3 Tips to Using an Allowance to Teach Your Kids Financial Responsibility

Jenn Richardson

In my opinion, giving your kids an allowance is one of the best ways to give them practice with money, while the stakes are low. As a wealth psychologist and mother, I recommend giving your kids a small allowance as early as 5 years old. Here are 3 tips to help you get the largest return on investment (ROI).

#1: Don’t Make Allowance Payment for doing Chores

Doing chores and helping out in the house is part of being in a family. Everyone should have age appropriate things that they are in charge of doing for themselves and for the family. Similarly, each member of the family should get a developmentally appropriate share of the family’s bounty. Being in a family means that you have responsibilities and also gain benefits from your membership. Both are important and non-negotiable, but neither should be dependent on the other.

The problem with paying kids to help is two-fold. First, it gives them the choice not to be helpful, if they don’t want the money. Again, helping within the family should not be an option, but an essential part of belonging. Second, when we pay our kids for the jobs they do, we diminish their natural motivation to be helpful and instead commoditize their assistance. I recommend having set chores and a set allowance for each child. Over and above this, kids are welcome to try and make extra money by offering to help out with other things.

#2: Don’t put Limits on What They Spend their Money On

Some limits are ok. If you don’t want your children to eat sugar or buy weapons, it is fine to lay down the law, but try to do it as minimally as possible. Part of the goal in giving allowance is to allow your kids to make financial mistakes on a small scale. One of my favorite examples happened in my own family. When our son was about 7, he wanted to buy sea monkeys and my husband wouldn’t let him because of the cost. My son reminded his dad about our rule that he was allowed to spend his money however he wanted and my husband reluctantly allowed him to spend 3 months of allowance on this purchase. Of course the sea monkeys never grew and our son was terribly disappointed. After giving him time to recover from this upset, we sat down with him and discussed his purchase, asking him if he would buy the sea monkeys again, what he might do differently next time, and how he could better evaluate potential purchases in the future? What seemed like a lot of money initially ($12) turned out to be a paltry sum for such an important lesson.

Remember, that your actions speak much louder than your words. It is not enough to teach kids about the importance of responsible spending, saving, and sharing, you must also set an example through your behavior.

#3: Teach Your Children to Spend, Save, & Share

A great tool for teaching financial literacy is creating Spend, Save, & Share jars as a family. While there are great ones to buy, I prefer to have clients use this as a family activity. All you’ll need are 3 oatmeal (or similar) containers per person and magazines that you can cut up. Have each person make a collage of pictures and words, like a vision board, for each of the 3 containers. For Spending, have each person envision the day-to-day things that he or she likes to spend money on and decorate the jar accordingly. For saving, have each person think of something big to purchase with their money, maybe a new bicycle or headphones (again, everyone can decide for his or herself-try not to evaluate anyone else’s choice). Being able to see what you are saving your money for will help your children (and yourselves) to delay short-term gratification for the longer-term goal. Finally, discuss as a family the ways in which you want to share what you have with others. Is it buying extra gifts to donate to a hospital during the holidays or giving money to save the rainforest? Whatever you choose, support one another in sharing.

Have fun doing this family activity and remember, that your actions speak much louder than your words. It is not enough to teach kids about the importance of responsible spending, saving, and sharing, you must also set an example through your behavior.


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