Personal Finance

Allowance For Kids: How Much is too Much

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Both parenting and financial experts agree that giving kids a regular allowance is a great idea. An allowance provides them with an opportunity to learn financial resources are limited and to make choices about spending and saving when the stakes are low and mistakes don’t matter too much.

How much allowance to give is a question most parents wrestle with from the time their children are preschoolers until the nest is empty. As kids get older, their needs and wants grow. Typically, they start to ask for raises, and setting a dollar-figure for their allowance becomes a bargaining process.

Factors to Consider

  • your children’s ages and expenses

  • your financial means

  • your attitudes toward money

Kids’ Ages and Expenses

Kids probably don’t need allowances before they start school, but they can begin to learn to handle money as early as three or four. One common rule of thumb for young children is to pay them their age in allowance. You might give a three-year-old three dollars per week, for example, and encourage him or her to deposit it in a piggy bank until there’s enough to buy a special toy or book.

Once kids reach the age of nine or 10 and become more independent, it is often more practical to tie their allowances to their weekly expenses than their ages. Sit down with your child and make a list of his or her expenses, from money for a drink with lunch to bus fare. Make sure the allowance, which should also be weekly, covers the total. Ideally, there should be at least a little money left over each week to allow him or her to make choices about spending and saving.

In high school, entertainment and clothing costs increase. So should your teen’s allowance. The best approach is to sit down together periodically to review his or her wants and needs and agree on an appropriate allowance, which can be paid weekly or monthly.

Parents often continue to pay for teens’ clothes, or at least for the more expensive items, such as shoes and winter coats, and for big-ticket extras, such as school trips. Others expect their kids to find part-time work, whether it’s baby-sitting or clerking in a store, to cover extraordinary expenses and savings for college. Your approach may be dictated by tight family finances or influenced by a strong belief that kids need to work for money in order to appreciate its value.

Many experts believe that making children earn their allowances by doing chores is not a good idea. It’s often hard to enforce, and you don’t want your child to go without lunch because he or she didn’t set the table or mop the floor.

However, you may want to offer your kids the opportunity to earn extra money by helping out around the house. This is a particularly attractive option if your child wants a big-ticket item such as a new bike or ski lessons, or if your finances are pinched. Whether the job is washing windows, helping to plant the garden or shoveling snow, negotiate a fair price in advance and make sure the work is done properly before you pay.