Giving kids an allowance is a great tool to teach financial responsibility from a young age. And I will also show you how it can teach your children to be socially aware and generous to charitable causes that are important to them. Keep reading to discover what is the right age to start, how much allowance to give them, and whether to tie it to chores.
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Why Give Allowance at All?
Some people choose not to give their children allowance, and instead give them money for individual activities, like going to the movies. Or the kids get larger gifts of money for birthday, Christmas, or other special occasions. Then they have to make it last the rest of the year.
If this describes your family, and it’s working well for you, then keep doing what works.
It is important for children to have money, though, to learn that they can’t have everything they want.
“The simplest way to start children off on the road to a balanced financial life is to give them some loot to manage. How much you give will depend on your personal circumstances and your attitude towards the whole concept of an allowance.”Author, TV host, and financial guru Gail Vaz-Oxlade
Basic Math Skills
Having money is a great way for children to be motivated to learn more about money. They start with sorting coins and bills into piles that look alike: pennies (which we no longer have in Canada), nickels, dimes, quarters, and so on.
After they master sorting, they start skip-counting. To find out the value of your nickels, you must skip-count by 5s.
Kids love to count how much money they have, and see it grow. They practice counting, adding, and then subtracting when they make a purchase from their available funds.
They also learn about the decimal system, since 10 dimes can be traded in for $1.00.
Older kids can practice more complex math, by calculating the tax owing on a purchase they would like. In Ontario, the HST is 13%, so that means multiplying by 0.13 to find the tax, or 1.13 to find the total price including tax. Sales also give an opportunity to practice multiplying decimals, such as when an item is 20% off.
Budgeting and Delayed Gratification
When children have their own spending money, they learn to plan and save up for larger expenses like a big Lego set, rather than spending today on dollar store items.
This can be a very difficult decision for children, and while we may advise them, it ultimately is their decision to make. We can discuss whether the dollar store item of cheap plastic will likely break quickly. Or whether it looks fun, but they might lose interest in a short time.
Even if we think it is a poor financial decision, consider whether it’s better to let this be a teachable moment. If they really want that $2 piece of plastic and it breaks before dinner, hopefully they’ll reconsider the next time they face an impulse purchase. Let’s face it, even as adults we sometimes made purchases that we may regret later.
On the other hand, feel free to veto any spending decisions you feel strongly about. If you have a “no toy guns” policy in your family, they cannot use their allowance to buy one even though it’s their money. If they want to buy a giant bag of candy, you may also want to veto that spending choice too.
Household debt levels are high and increasing, so the lessons learned here are essential to keep our future adult children from getting into financial trouble.
When children take their own coins and bills to the store and purchase a toy or treat, they are learning valuable lessons.
They learn to read the price of a desired purchase, consider how much taxes will add and compare that to how much money they brought with them.
For shy children, they learn to be comfortable talking with store clerks. Doing this repeatedly helps to build self-confidence.
And children learn to at least eyeball the change they receive to see if they got what they expected to receive back. Even better if they can calculate it exactly.
If you include a giving component to your children’s allowance, they will also learn to be generous to others out of their income.
If this is not something you choose to do, don’t worry, there are many ways we can encourage social activism, charity, helping others, and more.
Should Allowance be Tied to Chores?
Should allowance be tied to chores is a difficult question, and one that many feel strongly about.
Chores at Various Ages
Undoubtedly, children should help with chores at home, because they are part of the family. Chores need to be age appropriate, and may require parental assistance when young, and instruction or supervision when older.
Small children can find that tidying toys is fun when parents make it a game:
- Who can tidy more toys, you or me?
- Can you throw it into the basket from here? Yay!
- Do you think you can put away the stuffed animals faster than I put away the puzzles?
Older children can help set and clear the table for meals, or sort the sock basket. Teens can cook a nutritionally balanced meal or clean bathrooms without supervision, once you’ve shown them how.
Tying Allowance to Chores
If you feel strongly that allowance should be tied to chores, do what feels right for your family. One advantage is that it instills a strong work ethic – the more chores you do (or the harder the chores) the more you earn.
On the other hand, if your child is really motivated to earn a lot, you could be on the hook for some big payouts! You also need to keep track of who does which chores how many days each week. A paper-based chore chart is handy for this.
My Experience with Getting Paid for Chores
If you are unsure about whether to tie allowance to chores, I’ll tell you my story.
When I was a kid, I hated cleaning my room. Like most kids, I had a lot of little toys and knickknacks, and dusting meant taking them all off my shelves, then putting them all back.
I would need repeated reminding and pestering before I would begrudgingly clean my room. So my mom asked the neighbour mom for advice.
The neighbour told her that when her son didn’t do his chores, she didn’t pay him his allowance. After a couple of weeks he’d want money, and the chores would get done with no pestering. So my mom laid down the law – no cleaning my room, no allowance.
That’s awesome, I thought! I don’t have to clean my room anymore! As I recall, I went for at least two months without cleaning my room, and would happily have gone the rest of my life without ever cleaning it again. However, my mom was not going for that, and eventually just told me I had to clean my room anyways.
Now that I’m a parent, I never wanted to have that stalemate with my own children. They can’t “quit” chores like quitting a job. So for us, we made chores and allowance not connected.
Earning Additional Allowance
While our children have required chores, because they are part of the family, they sometimes want to make extra money. In that case, they can choose to do extra chores for bonus income.
Some examples are weeding the garden, or washing the car. These are typically jobs that are done occasionally, rather than daily or weekly like their usually chores.
As they get older, kids often like having a lemonade stand to earn a bit of money. And slightly older, they may start babysitting. Finally, at mid-teens, they can get a summer or part-time job.
How Often to Pay Allowance
How often you pay allowance is really up to you. We pay allowance every Friday, and I have a reminder on my phone.
Some people find that they forget whether they’ve given allowance or not, and how many weeks have gone by without paying. If this describes you, you might want to consider another system.
Some families give allowance once per month, which really requires great budgeting skills for the child to make it last that long!
Other families have their bank account set to automatically transfer the allowance into their children’s accounts on their own payday. One benefit to this is that it’s harder for children to spend impulsively if they need to go to the bank to withdraw their allowance first.
When to Start Giving an Allowance
What is the right age to start giving an allowance? I don’t think there is a hard and fast rule that it has to start the day they turn 5, for example.
- Does your child ask you to buy them toys whenever you are out.
- Does your child have a basic recognition and understanding of numbers.
That’s probably a good time to start thinking about an allowance.
My children are now ages 10-19, so it’s hard to remember what age exactly we started giving them allowance, but I believe it was around age 4-5.
When to Stop Allowance
There is much more written about when to start allowance, than when to stop. For our family, we stopped paying allowance at the end of the month they graduate from high school.
We have saved funds for post-secondary school in RESPs, a Canadian registered education savings plan. These funds are available for them after high school, assuming they’re enrolled in any kind of post-secondary education.
In addition, we want to encourage our children to have part-time and/or summer jobs to earn their own income, rather than Mr. Tea and I paying an allowance forever. This is exactly what our two older teens are doing.
How much Allowance to Give
Ultimately how much allowance you give your children will be based on your personal circumstances. The right amount for my family may be too much for some, or too little for others.
How much money you give your kids is much less important than the opportunity to talk about spending and saving and charitable giving. On the other hand, your kids will mutiny if the younger child earns more than the older child.
The Early Years
Some people follow the guideline of $1-$2 per year of age, each week. That is, a 5-year-old would receive $5 each week, while a 12-year-old would receive $12 per week. In higher income families, this could be as high as double, up to $10 for the 5-year-old and $24 for the 12-year-old. Before starting, consider whether this is a formula you will feel comfortable with when they are teens.
This is NOT the formula we use. We want our teens to be responsible for paying for more things than the younger children, so it would be unfair if they got only $1 more than the previous year, but suddenly had to pay for going to the movies.
What Spending are they Responsible for?
In the early years, children should be responsible for spending their money on things they want, like little toys or treats.
As they get older, depending on the family, they may start paying for things like going out with friends to the movies, or for fast food.
Older teens may also pay for clothing and shoes. Especially if they are brand-name conscious and parents don’t wish to pay for the extra cost.
If your children will be expected to pay for some or all of their post-secondary education costs, discuss that with them early and often. Help them set up a bank account specifically for that. Encourage or enforce saving a large percentage of any gift money they receive, as well as their high school part-time job income.
- Scholarships in Canada
- RESP investing from newborn to high school
- How to withdraw funds from your RESP
As a general rule, the amount of allowance given should correspond to what they are expected to pay for.
Whatever expectations you set for your children’s financial responsibilities, be clear with them. Then they will understand you won’t be buying them a shark tooth necklace when you take them to the aquarium.
Tithing or Charity
Some families include a requirement for children to allocate part of their allowance into tithing or charitable giving. We have done this ourselves.
Included in our children’s allowance, they must put $2 each week into the “charity jar”. Once each year, typically in the week between Christmas and New Years, we ask the children to count it up and divide it equally amongst them. (See how I make them do math over the holidays! I’m so sneaky that way.)
Then we talk about different types of charities. Some help the environment, help animals, help people in need, or support medical advances. We talk about what issues are important to them, and things that have touched our family such as cancer or heart disease.
Each child chooses the charity that is most important to them, and we donate the funds they have saved over the year. How do we do this? I take the cash back from the jar, and donate online using my credit card.
How to Encourage Saving
Most kids learn to save up for items they want, and like seeing their bank accounts grow. But with interest rates at well under 1%, there is little motivation for young people to put their hard earned allowance in the bank.
If this is something you want to encourage, you may want to have a parent-match program for your children. For every dollar they deposit in the bank, you will deposit a dollar into their account too. This could get expensive, though, so you may wish to decrease the initial allowance knowing that you will be giving this bonus.
Our Family’s Allowance Plan
Here is the exact plan our family uses for allowance, and what requirements are associated with that:
Starting about age 4-5, we give our children about $5 per week. Of that money, $3 is their base allowance and they contribute $2 into the charity jar.
There are no requirements or restrictions on how they spend or save the remaining $3.
At some point during this time, when they have saved about $50, we open a child bank account with them. Any time they wish, we will help them deposit or withdraw from their account.
We raise their allowance by about $0.50 each year. I typically do this in September to coincide with back-to-school, as it seems easier for me to remember.
By middle school, their base allowance is about $7, plus $2 for the charity jar.
We live in an urban environment, in Toronto, where middle school students are permitted to leave school for lunch. We don’t live close to any middle school, or not close enough to come home for lunch. And kids at this age enjoy going out for lunch in small groups.
Instead of giving them lunch money and expecting change, we add an additional $6 per week to their allowance during the school year. This requires our children to make choices based on their funds. If they want to buy a prepackaged lunch from the grocery store near school and not buy a drink (they have reusable water bottles), they may not spend the whole $6. They get to keep any extra. If they want to go out for a lunch and drink that takes more than $6, then they pay for the extra themselves. They may also choose to go out more than once a week if they want to pay for it.
During summer holidays, winter break, and March break, they do not receive this lunch money.
That means the total allowance for grade 7 is about $7 base, $2 charity, $6 lunch, for a total of $15 during the school year; and $9 during holidays.
By grade 9, their base allowance is about $8, plus $2 for the charity jar, and $6 for lunches during the school year.
In grade 10, we want to encourage our children to start making financial decisions about going out with friends. So we add another $6 to their allowance each week. We no longer pay for them to go to the movies (unless it’s a family trip), or other activities with friends.
Biking versus Transit
At various times, my teens have attended schools that were too far away to walk. Living in Toronto, we have a good public transit system, which costs $2.05 per trip for teens. I pay for their public transit. However, if they choose to bike to school, I pay them $1 each way. That way they earn some money for their effort, and I save money on transit costs.
When Don’t they get Allowance?
Our children have enjoyed going to sleepover camp during the summer, and do not receive allowance for the week(s) they are away. This is typically 1-2 weeks. But the last two summers Chris has worked as a camp counsellor, so he has been away most of the summer.
The End of Allowance
Allowance ends at the end of the month that they graduate from high school. At this point, they are about 18, and they should have summer or part-time jobs. We have RESP (education plan) funds for their post-secondary years.
Two Allowance Mistakes to Avoid at All Cost
Don’t use allowance as a threat to get good behaviour from your children. This is a negative power play. There are much better ways to enforce behaviour expectations rather than taking away their allowance. For instance, you could suggest that they make lunch for the family while you do their chore of emptying the dishwasher.
Additionally, don’t give children money for good grades. Doing well in school is its own reward, as it leads to more career opportunities. In addition, consider whether you pay more to a child who gets straight As with no effort, or the child who studied for hours every night but got only Bs and Cs. No good can come of this.
Tell me about your Allowance System!
Are your kids old enough to get allowance? I’d love for you to share in the conversation. Let me know in the comments what works in your family!