First published 20 July 2019
Author: Barbara debriere
Summary
Provide an allowance of 2x the child’s age per week if your budget permits. Present opportunities to grow financial intelligence and give kids jobs they like. Guide your kids and trust your kids. Recovering from financial mistakes in the early years is easier. Financial deprivation creates unintended consequences and sets a child up to be a financially ignorant adult.
Introduction
One of the best decisions we made as parents was giving our children a decent allowance with no strings attached. However, discussing allowance with other parents is often uncomfortable. Many parents are quite dogmatic about their philosophy, even if they can’t point to direct results. The topic of allowance comes up frequently among parents. Most commonly, I hear parents either boasting about impractically small allowances or how they don’t give an allowance at all. Some parents only give an allowance for completed chores, but I have yet to see this produce consistent results.
When I talk about allowance with other parents, I am often regularly met with resistance. This parent might consider themselves very open minded and inclusive, and yet the walls that go up around allowance are fast and striking. Even if I share that I can directly link our children’s financial intelligence to their allowance, the walls remain. Before I talk about what we did, let’s start by defining allowance and other similar terms.
Allowance – Usually pocket money. An amount of money that parents regularly give to their child to spend as they choose. (Cambridge, 2024)
Wage – a particular amount of money that is paid, usually every week, to an employee, especially one who does work that needs physical skills or strength, rather than a job needing a college education. (Cambridge, 2024)
Stipend – A fixed, regular income that is usually not based on an amount of work done. (Cambridge, 2024)
Subsidy – Money given as part of the cost of something to help or encourage it to happen. (Cambridge, 2024) Subsidies could be given to encourage specific behaviour.
Grant – An amount of money given especially by the government to a person or organization for a special purpose. (Cambridge, 2024)
The Purpose of Allowances
Why Do We Give Allowance?
Allowance is often used to educate children about money, provide them with spending money, and to incentivize help around the house. While some parents oppose “giving” money to their children altogether, it’s rare to find those who adopt a well-researched, scientifically-backed approach to teaching kids about finance. Paradoxically, it’s equally uncommon to meet parents without a strong opinion on the matter.
How Much Allowance Money Do We Give Our Kids?
Studies show that mentoring and experiential learning opportunities (University of Arizona, 2018) are more important than lecturing in the development of financial intelligence. (LeBaron-Black et al., 2022) One study showed that giving children a regular, useful amount of money, coupled with guidance, improved the chances of the children saving money as adults by 16% and the amount saved by 30%. (Bucciol & Veronesi, 2014)
Inspired by The First National Bank of Dad by David Owen (nice review), we started giving both kids twice their age in weekly allowance starting at age three. That meant that at age three, our child would receive six dollars every week (USD); at age four, they would get eight dollars weekly, and so on. Six dollars for a 3-year-old may seem like a lot, but we found it to be a nice amount to help our kids learn to save and to build experiences as consumers. The increase in allowance each yearly seemed to track our children’s changing consumption.
Work for Allowance?
In the U.S., many parents tie chores to an allowance. In our family, we expect help from our kids like we would a roommate, considering the child’s maturity, of course. When the work is outside of normal family expectations, we offer a wage. Exchanging dollars for everyday housework would complicate our family relationship in confusing ways. Our expectations as adults would be frequently unmet because our workers are children, and they care very little about housework. We would likely hold money over our children’s heads, and our children would grow to distrust us and come to view money as a weapon.
Room and Board Instead of Allowance?
Some parents justify giving little to no allowance arguing that they already provide food and accommodation, but this approach is deeply flawed. It closely resembles the dynamics of indentured servitude, where the basic necessities are provided in exchange for labor, often under exploitative conditions. Such an arrangement is inherently unfair because it represents unilateral contract imposed on a minor who lacks the power to negotiate or refuse. By adopting this practice, parents risk conditioning their children to accept exploitive and unfavorable agreements in the future, potentially undermining their ability to advocate for fair treatment and just compensation in adulthood.
Our children are fully aware of the costs associated with our household, including mortgage, rent, utilities, and other expenses. Charging them a nominal fee to cover a portion of these costs, such as $20 a month, would not provide them with a meaningful understanding of these financial obligations. In fact, it might give them a distorted view of the true cost of living, as it suggests that one can secure housing and utilities for an unrealistically low amount.
By providing a full allowance without deducting for room and board, we empower our children to manage their finances with the freedom to make mistakes and learn from them. This approach better prepares them for the realities of adult life, where they will need to budget for all their expenses without the safety net of artificially low costs.
Allowance and Subsidies
In Southeast Asia, I’ve seen subsidies used by parents to encourage their children to study for exams. Unlike in the U.S. where kids are sometimes paid for the highest marks, my observation is that Singaporean kids, for example, seem to receive a subsidy regardless of results. This money is outside of regular allowance and is like a bonus.
Overall, I really like the idea of a subsidy because the reward is tied to effort over results. Kids study into the night on school days and may have tuition (extra helper classes) on Saturday during exam time. Exam time is super stressful, and the kids work hard and forgo many fun activities. The end of exams brought a palpable sense of relief and celebration. Kids were out having fun and spending their hard-earned money. After exames, the mood around Singapore seems to shift from winter to spring.
Try, make mistakes, learn, and iterate
I love this phrase “Fail early, fail often, but always fail forward” from John C. Maxwell. It summarizes so well our children have learned to manage their money, and also how we have grown as parents. Having control of a decent allowance gives kids the ability to make mistakes, learn from those mistakes, make corrections, and iterate.
A friend shared with me how they were given no money growing up. At age 19, they received their first credit card and promptly racked up tens of thousands of dollars of debt. We wanted to teach our kids about these financial tools during their younger years when they were still receptive to what we have to say. We also wanted our children to be able to make mistakes when the stakes and the potential for losses were lower. Correcting the costly mistakes of a financially inexperienced young college student who has just received their first credit card was something we wanted to avoid.
We therefore believe that it is safer and more effective to let our children experiment and learn while they are still under our guidance, where mistakes can be corrected without major consequences.
Through the Years: The Path of Progress
Early Years (Ages 3-6)
Our kids learned that shopping at thrift stores would buy them more toys and allow them to have money left over. Ages 3 to 6 were our children’s biggest years for consumption and financial growth. At these young ages, our kids practiced spending and made mistakes. By age 6, they knew that searching websites for product reviews helped them make better decisions and avoid disappointment.
By the time they were 6 years old, they had already learned that impulse shopping can cost more. They began practicing patient and opportunistic consumption. Ordering a toy one day and getting it two days later felt like getting the toy twice, so ‘the wait’ became exciting. Money was spent on Legos and dolls, but thrift stores remained our children’s preferred shops. By age 5, our son was already taking resale value into account when making his purchases.
Elementary years (Ages 7-9)
Our kids had figured out that plastic breaks and is usually impossible to repair. They stopped buying plastic with some exceptions like Legos. They looked for Legos at thrift stores and found several complete sets and antique sets. Our son figured out the average per-piece price of Legos and refused to buy sets where the per-piece price was higher than the average. At seven, our oldest child learned to ‘standardize’ and specifically only purchased dolls that could wear the same shoes or clothes as the dolls she already owned.
Reviewing toys before purchasing gave our daughter insights into resale marketplaces like eBay. She started buying specific toys at thrift stores to sell on eBay, marking her first entrepreneurial endeavor. At age nine, she also orchestrated her first fundraiser, raising 200 USD for local charities. Additionally, she opened her first (and last) lemonade stand, realizing that selling lemonade was a great way to meet neighbors but a terrible way to make money.
By ages 8-9, both children began to dislike shopping and welcomed a massive purge of our belongings. Our son decided he was done buying new Legos and sold off about 95% of his collection, keeping a select few of his favorite builds. The kids enjoyed selling their toys through eBay and Craigslist and put all of the recovered funds into savings.
Both children were already very responsible with money and received their first credit cards around ages 7 and 9. We stressed that credit cards are to be paid down, in full, monthly, so they must never spend beyond their monthly allowance or savings. They rarely used their cards at this age because they weren’t shopping much, but they got a little practice, and we earned 1,000 extra miles per card, so it was a win-win.
Pre-Teens (Ages 10–11)
Our kids really lost their interest in all stores, even thrift stores. By ages 10 and 11, most of their purchases were digital. They no longer wanted toys, preferring puzzles, board games, and stuffed animals. By age 10, our son started managing his budget, receiving a monthly stipend instead of an allowance. He would use it to pay for his personal expenses, plus eyeglasses, haircuts, and clothing.
At this age, much of our children’s money went into savings. Our son didn’t even want to spend his money on haircuts or clothes. Taking a tip from The Cheapskate Next Door, we let our son know that he is given an allowance in part to take care of himself, so he cannot neglect himself even under the guise of spending less. He really doesn’t like visiting salons or shopping for clothes. There are always multiple lessons going on with children.
By age 10, our youngest had wisely used a credit card for roughly three years. Noticing the effect that Bitcoin was having on the price of computer gear that he wanted to purchase, he started to learn about Bitcoin.
Transition to Stipend (Ages 12–14)
At 12, our oldest child started managing her own budget. She received a monthly stipend instead of an allowance for all personal expenses, including clothes, haircuts, and her boba tea cravings. By this age, she was managing a metro card, dining card, credit card, and ride share accounts. She always ensured she had cash in her wallet and topped up her metro and dining cards when they were low on funds. The cash-funded dining cards accepted at the mall food courts in Singapore allowed her to eat when she was hungry, either alone, or with friends.
Our oldest also created her first successful business by age 12, opening a pocket store in a toy shop at our neighborhood mall. Having a store meant regular visits to the mall to restock her shop. She also frequently took the metro to deliver orders or see friends, and nearly every metro stop in Singapore is under a mall.
Being at the mall so often meant that our 12-year-old could handle all of her own shopping. If she wanted a second opinion when shopping for clothes, she sent a picture via a messenger app. Despite endless opportunities to shop, she purchased only what she needed after much consideration. Since she was already at the mall, she took it upon herself to stop at the grocery store if she knew we were low on certain foods.
Pocket shop at Plaza Singapura – Our Daughters First business!
Within a couple of months, our daughter’s business was earning more than her stipend. In addition to this business, she was also earning money from editing and graphic design. She put her earnings back into the business, tools, or savings, while her stipend went mostly into savings. By age 13, she started outsourcing work to vendors to handle the growing demand for her products.
Our daughter had managed a credit card for over four years by age 14. In those four years, she didn’t make a single crazy purchase, even with the freedom to shop on her own and make her own choices with her credit card.
Salary and Budgeting (Ages 15–18)
At age 15, our oldest taught herself Portuguese in order to sell her products in Brazil. Within 6 months, she had created a large following and was selling her products across Brazil through her online store that she built and Instagram where she had amassed 30k followers. She was invited to various high-profile events across São Paulo, Santa Catarina, and Rio de Janeiro.
By 2020, our oldest decided to transition away from selling physical products. Instead, both children took interest in either swing trading or traditional stock trading. The oldest continues to create online revenue streams using social media platforms.
Adult Credit cards (age 18)
As mentioned, our children have had credit cards since ages 7 and 9 because some banks allowed for junior accounts. We only could hope that using their cards would help build their credit. (having a high credit score n the U.S. is crucial for getting loans and good interest rates). Well it turned out that our children have been building a credit history. At 18, she applied for a secured credit card. After the conditions were fulfilled, they applied for a traditional credit card with a nice reward program. This was all made easier because she already had credit history.
Chores and Allowances: Balancing Work and Rewards
“What about chores? I’m not giving them money for nothing!“
My partner and I came from farming families. Seeing my family work together on the farm showed me how a family working together can lower the burden on everyone. I want our kids to discover that too, which is why we don’t pay them to help out around the house. Additionally, when I ask for help from the kids, especially with time-consuming tasks, I make sure they have the time. Sometimes the kids need support to complete their own work. Other times, it’s us, the parents, who need support, and the kids are happy (usually) to help out. Our kids have told us they want to help out because we are family and not because they expect to be paid.
Giving Our Kids a Fair Wage
If you decide to give money for chores, try replacing the word ‘allowance’ with ‘wage’ and see if that wage is still fair. Would you work for the same amount you are offering? Is the wage fair that you are offering your child? When we ask for help with jobs that fall outside of normal household tasks, we offer our kids a fair wage. I say “offer” because sometimes they refuse to be paid. However, we don’t expect our kids to work for us simply because we’re family—especially when they could be earning more elsewhere.
Give Them Work They Love
Do your kids have skills that could contribute to the family? Maybe they’re tech-savvy and could handle managing the equipment, updates, and network. Or perhaps they’re handy with tools and enjoy fixing things. Could they take responsibility for maintaining the garden or caring for plants? Repair clothing?
Our older child has a strong head for business and stocks, so we often bounce things off of them. They have have helped out with editing, grocery shopping, food orders, and even refreshing my closet. Our younger child helps with errands and cooking. He is also a trusted strategist whose objectivity and logical approach I value greatly. I can rely on him for reason or solutions when neither are available to me. If I weigh the value of their support, it makes more sense for us to outsource easier household tasks and let our kids help in ways that are better suited to their interests.
Allowance isn’t for Chores
We want our children to develop strong organizational habits but we train this by example an modeling. We don’t pay ourselves for doing household chores, so it feels counterintuitive to pay our kids for them. While cleaning can be a job and even a lucrative business, my aim isn’t to turn them into expert housekeepers—just capable ones. I don’t think children need years of practice to eventually manage their own households effectively; they just need an understanding of the basics.
In our family, allowance is given to encourage personal responsibility—caring for ourselves, our belongings, and our surroundings—not as payment for chores.
A Healthy Allowance vs Zero Allowance: A Personal Perspective
A Healthy Allowance: Personal Perspective
When I was in year 8, I received my first allowance of 20 USD per week. That year was the most creative year for me. I had money to buy materials and start sewing, I bought my first computer, and I started working with makeup, which I would later do professionally.
In years 10 and 11, I lived in Germany and made 20 USD per hour working as a childcare provider. My wages, combined with the strong exchange rate between the dollar and the Deutschmark, provided me enough money to buy my clothing. I could afford to take a cab when the trains were down, meals out with friends, concerts, and trips across Europe with friends. This kind of freedom, both financial and physical, was incredibly inspiring and played a major role in helping me mature.
Zero Allowance: Personal Perspective
In years 9 and 12 of school, I lived with guardians who didn’t offer an allowance or it was so small that it was useless. To have spending money, I worked a minimum wage job as there were few options in the smaller town. The job was mostly a waste of time as the check was too small to provide any positive value. But these are the choices that many face. I was a student with extended family that was covering my meals and shelter. But even at age 16, I saw the need for minimum wage increases. Fast food work is demanding, thankless work and the minimum wages offered for this work are simply not enough.
My paycheck was just enough to cover gas for my car (a generous gift from my grandmother) to get me to work and school. While cars were seen as a rite of passage symbolizing freedom, I quickly learned that they can become a financial burden. Cars can even trap us in less-than-ideal situations due to their cost and the reliance they create.
Our town had Walmart, and I never liked shopping there. Thrifting was fun for me however, it wasn’t as acceptable then. And if it had been discovered that I wore thrifted clothes, the popular kids in school would have made my life miserable. Even though I had a car, I wasn’t allowed to drive into the city, which was an hour away – a solid rule. However, I had moved from a large city where I had a ton of freedom. I was into fashion and I was used to buying, making, and expressing myself through clothing. Now, instead of shopping at Benetton, I had to shop at Walmart. I felt like I was being punished for the freedoms I enjoyed in Germany.
I struggled with the lack of freedom and the limited options of a small town. I’d moved from my mother’s home to a guardians for safety reasons with which I had not yet come to terms. I was also the new/return kid at school with the crushable confidence of confused teenaged girl. A decent allowance and more flexibility would have significantly boosted my self-esteem and made at least some of the targets on me disappear. For a teenager, a healthy allowance can feel a lot like freedom.
I had two very different high school experiences. In the U.S., high school meant two years of merely putting in the time. In Germany, I had two years of unforgettable, life-changing experiences. The time I spent in high school in Germany was a period of significant growth and development, vastly different from the mostly monotonous experience I had during my two years in the U.S. The key difference came down to the physical and financial freedom I enjoyed in Germany, which made all the difference in my personal growth.
Allowance for Chores: Personal Perspective
In Year 4 of primary school, I lived with a guardian who gave me a small allowance in exchange for doing chores on Saturdays. The money was just enough to buy candy on the weekend. The allowance didn’t teach me anything, but I did learn some lessons. I realized that collecting knick-knacks that require dusting is a pointless hassle. Vacuuming helped me understand how filthy and gross carpets can be. And finally, I realized that I never wanted to lose a Saturday to mowing a lawn. So, chores offered plenty of takeaways, but mostly around what I didn’t want to do when I grew up.
What’s the lesson?
Parents have bought into disproven practices around allowance for years. It’s typical. Sometimes we just repeat what we learned without questioning or updating our knowledge. Studies that show giving children a reasonable allowance affords them real-life opportunities to make financial decisions, make mistakes, and develop financial literacy.
Give them practice
A study by the National Endowment for Financial Education suggests that giving children an allowance, coupled with guidance, helps them learn to budget, save, and understand the value of money. Managing a real amount of money is useful in learning about financial responsibility. (Saputra & Susanti, 2024)
Give them enough money
A report by T. Rowe Price showed that children who receive an allowance that is sufficient for them to make meaningful decisions tend to develop better financial habits. If the allowance is too small, it will not offer opportunities to make meaningful choices or learn from their mistakes. (2015)
Give them a chance
It is believed that depriving children of money can lead to issues such as hoarding, fear of spending, or an unhealthy relationship with money in adulthood. Financial deprivation fails to teach financial knowledge and leaves children unprepared to effectively manage money as adults. (Manevski & Zenegar News, 2022)
Depriving a child or young adult of resources can too easily create desperation, wrong choices, and even hoarding. We have adult friends who admit to being terrible with money and struggle financially, but as adults, they have no dedicated mentors and little time to learn. The downside of not giving a child access to money is that they will not learn about money. Financial ignorance and deprivation can set a child up to make financial mistakes as an adult, which can be difficult to recover from.
One set of parents I talked to didn’t want to give a decent allowance because they didn’t want to create a “consumer.” They decided the best solution to train their child against consumerism was to starve the child of real money. Even though this method hadn’t worked in their own lives, this was the philosophy that they decided to use with their children. Giving our kids a decent allowance did not turn them into hyper consumers. In fact, I can barely get our kids to go shopping with me anymore. Christmas is a major struggle because they “are fine” and have very few wants. Getting a decent allowance helped our children grow into mindful consumers.
Financial security is probably one of the most important things we could hope to give our children. Schools barely touch on finance. And really, if kids are to learn about money, parents are in the best spot to teach them. Teaching our children to be critical thinkers and financially intelligent should be a top priority. Raising a financially literate child doesn’t require the parent or guardian to be a financial genius or even wealthy. We simply gave our children a decent allowance and the freedom to spend their money with very little interference, and they did the rest.
In Conclusion
One of the best parenting decisions we made was to give our kids a decent allowance with no strings attached starting at the age of three. Our kids have not lived lavishly, but they also have not come from a place of need or scarcity. A happy consequence of giving our kids agency over their money was that they took responsibility for their savings. And because our kids made their own purchases, we were only left worrying about birthday and holiday gifts.
As a final mention, I recommend the book The First National Bank of Dad. Give your kids a good allowance if you can manage it. And give them the space to make mistakes. I can only offer the results of our situation, but our results are overwhelmingly positive. Given our kids’ trajectory, I can’t imagine many surprises in our children’s financial future that won’t be interesting or happy surprises. I’ll keep you posted!
Sources
Definition & meaning (ND) Cambridge Advanced Learner’s Dictionary & Thesaurus. Available at: https://dictionary.cambridge.org/dictionary/english (Accessed: 08 August 2024).
University of Arizona (2018) Parents: To prepare kids financially, give them practice with money. Available at: https://phys.org/news/2018-11-parents-kids-financially-money.html (Accessed: 11 August 2024).
LeBaron-Black, A.B. et al. (2022) Talk is cheap: Parent financial socialization and emerging adult financial well-being, Wiley Online Library | Scientific Research Articles, journals, books, and reference works, Wiley online Library. Available at: https://onlinelibrary.wiley.com/ (Accessed: 11 August 2024).
Manevski, D. and Zenegar News (2022) Lack of financial education has led young people into debt, study says, Lack of Financial Education Has Led Young People Into Debt, Study Says. Available at: https://www.newsweek.com/lack-financial-education-has-led-young-people-debt-study-says-1710155 (Accessed: 10 August 2024).
Saputra, J. and Susanti, D. (2024) A study of several financial literacy teaching methods for …, Research Gate. Available at: https://www.researchgate.net/publication/352968929_A_Study_of_Several_Financial_Literacy_Teaching_Methods_for_Children (Accessed: 10 August 2024).
Authors N/A (2015) T. Rowe Price Insights: Kids who get an allowance are more money savvy than those who do not, T. Rowe Price: Kids Who Get An Allowance Are More Money Savvy Than Those Who Do Not | T.Rowe Price. Available at: https://www.troweprice.com/corporate/us/en/press/t–rowe-price–kids-who-get-an-allowance-are-more-money-savvy-th.html (Accessed: 10 August 2024).
Manevski, D. and Zenegar News (2022) Lack of financial education has led young people into debt, study says, Lack of Financial Education Has Led Young People Into Debt, Study Says. Available at: https://www.newsweek.com/lack-financial-education-has-led-young-people-debt-study-says-1710155 (Accessed: 10 August 2024).