Kids Allowance: how much to give, when to start, what to include

Questions you might be asking as a parent

At what age should I start giving an allowance to my kid?
What is the right allowance for my kid, and how regularly should I give it?
Why am I constantly handing out cash to my kid?
Why is money a source of contention between me and my kid?
Should payment of an allowance be part of discipline and good behaviour?
Should an allowance be earned in return for household chores?
How do I teach my kid to save money?
When should my kid have a bank account?
Is it possible for my kid to have a debit card?

These are common questions, and many parents struggle to answer them. In reality, there are no right answers and many opinions out there. What works for one family may not work for another. This article has some ideas to consider when deciding what is best for your family.

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The case for an allowance

Financial literacy helps individuals navigate the financial problems of daily life. Teaching your kids about money and how to save, spend and share it will prepare them for life.
Giving kids an allowance is considered one of the best ways to teach money management skills. An allowance encourages regular conversations about money.
Kids learn to handle money from their parents, so we should guide the conclusions they form from watching us. They can learn through the practical use of their own money.
The best teaching strategy combines advice, giving an allowance, and delegating control of that pot of money to your kid.

"Money makes the world go round" is a cliche, but it highlights that money is important. Indeed, many basic and ordinary things are only possible with money. As your kid grows into adolescence and adulthood, you can empower them with a solid understanding of what money is, how it works, and its value. As we all know, you can explain something ad nauseam to your kid. Still, until they experience it for themselves, they may not accept or retain the knowledge. Only when your kid experiences not having enough money to buy what they want will they start thinking about what they need. This is where an allowance comes in. It can be a handy tool for your kid to learn the power, limitations, and value of money.

If you are in a cycle of being forced to say NO to your kid while shopping, the answer is an allowance. If you feel like an ATM, when your kid is coming to you regularly for another drop of cash to fund some activity with friends, the answer is an allowance. If your kid is running up large bills you must pay, the answer is an allowance. If your kid isn't interested in money, the answer is an allowance.

Decide what your goal is for using an allowance

It's very tempting to answer yes to all these goals, as they are powerful and important, but they each require learning different lessons. Mixing those goals under a single practice of giving an allowance might diminish learning. It might be best to separate an allowance (a gift) from additional money that can be earned (a payment) from contributions to the smooth running of the home (unpaid).

Teaching your kid to be careful with money

In our modern world of cards, apps, contactless and other "click of a button" payment methods, kids must learn that real money is needed to buy things. They need to own a pot of money to understand the value of money, learn how to be responsible for it, and look after it.

How and where to save, and how that affects saving first before spending.
Saving in a money box vs an account.
Paying in cash or using a debit card.
Consequences of losing money, or misspending it.
Spending money now means no more until the next allowance.

Over time there will be numerous opportunities for learning and conversations about what happened and why. Just remember, don't be tempted to bail them out. Instead, talk about what happened and why so they can avoid making the same mistake next time.

Teaching your kid to earn money

You can find ways for your kid to earn money for doing extra jobs beyond their responsibilities as a family member, e.g. clearing leaves or clearing snow. Ideally, these jobs would benefit you as a parent, or you would pay to have them done. Keep tasks simple and doable to avoid getting into negotiations about completion, pricing, and payment. Avoid confusing this with tasks your kid should be doing as a good household member, like keeping their room tidy or picking up their laundry.

Sticking to a task till it is complete and done well.
Financial independence, and how that enables choice.
It is possible to earn enough money to buy a larger item, but it requires patience and persistence.
Breaking down a large purchase into a series of monthly amounts to save can give perspective on if that goal is achievable.

Part of an incentive and punishment scheme

Think carefully about this topic before you decide what to do. Using a given or paid allowance to motivate or discipline your kids significantly complicates your job as a parent.

You, as a parent, are now in the middle of setting tasks, measuring them, and evaluating performance. This can quickly become work for you.
Every household task could become a negotiation about the monetary value of that task.
You will have to ensure you are being consistent. Kids like to spot unfairness, particularly in how you treat siblings.
Once you withdraw payment for a task, consider how you will reinstate it in the future when you want that task done again.
Paying for good school work and grades is very difficult to get right. For example, do you end up paying your smart kid more than your less capable kid, even though grades come easy to the smart one, and the less capable one was the one who reached their full potential?
Will your kid stop doing jobs or school work once they feel like they have enough money?
Your kid may come to see money as a source of conflict between them and you.
If you withdraw payment of their allowance, the variability in the allowance can undermine the budgeting learning. This unpredictability means that they can't budget.

Decide first

When to start

You can start as early as the time when your kid can count. Many people suggest you can start as early as four or five years of age. However, it's never too late to teach your kid about money. The experience of giving them full control over some money is so strong that even doing it a few years before they leave home will help them prepare for life outside the home.

How much to give

How much you give depends on what you intend the allowance to cover and what the family budget allows. Make it clear each year what the money does and doesn't cover, e.g. treats, gifts for others, charity donations, and saving for a particular game or toy. Set a budget and stick to it. Try not to supplement or pay in advance if your kid runs out of money. The amount you give will typically increase as they age to include more spending categories, e.g. clothes, movies, and phone use. A rough rule of thumb is 50 cents to $1 per year of age per week. One way to consider an allowance is to give what you would already have spent on your child. Just allow them to decide how and when to spend it. Also, remember that if the allowance is too generous, your kid won't learn how to allocate their money because they don't have to prioritize.

Take a look at our Kids allowance data analysis for graphs and tables of allowance and pocket money by age for the USA and UK.

How to give

Be sure to give the allowance on a set day, and remember it. Imagine if your employer missed or delayed a paycheck! Paying cash to younger kids makes it an authentic experience. It will allow them to handle and look after their own money. The sound and feeling of dropping coins into a filling piggy bank is a powerful message. Some people encourage their kids to split their allowance into save, spend, and share "jars". As soon as your kid can own one, pay the money into a bank account with an ATM or debit card so that they can progress from being a child with money to a young person ready for the world.

What to learn

Long-term and short-term spending and saving goals. Initially, your kid may spend the money as soon as they get it, but as they mature, they can learn to put money aside to buy something better in the future.
The relative value of things. The day your kid decides not to buy that flashy toy because it's not worth it will be a big win.
Opportunity cost. When you decide to buy something, you give up the chance to buy something else.
Buyer's remorse. Accepting that once spent, it's gone, and no amount of complaining can reverse your kid's decision.
Saving for gifts for others for a birthday or a holiday helps your kid think about the needs and wants of others. It can create a longer-term goal and encourages short vs longer-term trade-offs.
Earning money is hard work.
Showing children how to check a bank balance.
Setting your own rules around money.
Discussing where the household income comes from.
Openly talking about budgeting and spending decisions.
The financial choices you have to make as a parent.
Finally, don't be surprised when they make different spending choices than you would. That's all part of the learning for you and your kid.

Conclusion

An allowance is a great and fun way to teach your kid about money. Giving some of the family's money to your kid to own, look after, spend, or save as they wish, can make them feel important, and they will learn a lot along the way.

It's critical to consider "giving" an allowance versus "paying" for work versus "unpaid" chores. Is an allowance delegation of ownership of "family" money or something you must earn? Mixing these can confuse what and if your kid learns, so it is better to keep them separated.

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Why should I give an allowance?

Reading time: 10 minutes, revision: April 2024