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Raising Money Smart Kids

The Allowance Question

Raising money smart kids means giving them the tools and knowledge to make solid financial decisions on their own. One of the best ways to do this is to give them money and have them make their own choices on how to spend and save it.

There is a lot of debate about whether or not you should give a child an allowance. You first need to determine if you can afford to give your child an allowance. If you can, an allowance can be a great way to foster wise spending decisions.

Pros and Cons of an Allowance
  • Children learn to be responsible for their own money and have to deal with the consequences of a bad decision.
  • Children learn the value of money and appreciate it more.
  • Money is coming from their pockets – not yours. They learn that when the pocket’s empty, they can no longer spend.
  • Kids may not spend the money how you would like them to.
  • They may complain about not getting enough of an allowance.
  • They may lose their money.
When Should You Start?

Research shows that children start to recognize the differences between needs and wants and understand that money is used to buy things around preschool. This can be a great time to start, especially if they start asking questions about money. If you don’t feel your child is responsible enough or they show signs that they don’t care or understand money, wait a little to begin.

What Kind of Allowance Should I Offer?

There are three main types of allowances:


With this type of allowance, you are paying your child to do their chores or get certain grades. It teaches a child to work for their money, not just expect it. However some experts argue that children should do their chores because they are contributing to the family and get good grades to be a better student, not just to get paid.


A needs-based allowance has nothing to do with chores or grades, but rather, it is based on what your child reasonably needs for a week. For example, if you are regularly buying things for your child (such as candy or toys, etc.), give them the money as an allowance instead. This gives them the responsibility of deciding how to spend or save their money.


With this type, you provide them an allowance based on their needs for the week (you can even make this payment contingent upon completing their assigned chores). Then, you allow them to earn additional money by doing chores that go above and beyond their assigned chores.

The combination allowance provides the best of the other two types. It teaches the child that they can work to earn more money and still gives them enough to buy some of their needs for the week.

You’re In. Now What?

Once you’ve decided to give your child an allowance, the next step is to figure out how often and how much.

Some parents decide to do a weekly allowance while others go with biweekly or monthly. If your child is younger, a weekly allowance may be better as the time span is shorter. As they get older, consider moving to biweekly as that better represents an actual paycheck cycle.

A great way to determine how much to give your child is to tie the total amount to the child’s age. Some recommend giving them an amount equal to half their age, for example if the child is 6, give them $3 a week. Others argue giving them one dollar per year.

One of the benefits of tying it to their age is you do not have to worry about when to increase their allowances. They know that on their birthday they’ll get a “raise”.


Set up a day to act as a payday for your child. On that day, give them their allowance in all singles. The first couple times you pay them, talk with them about what they plan to do with the money. Discuss the three main ways to use money: Save, Spend, Share. Encourage them to set aside money for saving, sharing, and spending.

We encourage children to set Savings Rules for their money. This means they set aside a certain percentage of any money they receive. For example, we typically recommend starting with 50%. This makes figuring out how much to save, spend, and share easier. As the child gets older and takes on more responsibilities with their finances, this number may need to be adjusted. But always make sure they are saving some of their money!

Let Them Make Mistakes

When you begin giving an allowance, one of the most challenging things can be to let them make their own decisions and to be ok with them making mistakes. Think of it this way: it’s better if they make a mistake at age 6 with $5 than at age 26 with $35,000.

The best way for children to learn is to make a mistake. If they spend their allowance in one day and have nothing later when they want to do something, use it as a teachable moment to talk about the importance of budgeting.

An allowance is a great tool to teach children about money and smart money skills. It encourages conversations about needs, wants, financial decisions, budgeting, saving, and so much more.