How Much Allowance Should You Give Your Child?

Allowance is a great way to teach children about money management. It can help them learn to budget, save, and spend wisely. But how much allowance should you give your child? There is no one-size-fits-all answer to this question, as the appropriate amount will vary depending on your child's age, your family's financial situation, and your personal parenting philosophy. However, there are some general guidelines that can help you make a decision.

Research on Children's Allowance

Studies have found that giving children an allowance can have a positive impact on their financial literacy and development. One study published in the Journal of Economic Psychology found that children who received allowances at home spent less money overall than those who did not(1). This suggests that receiving an allowance can help children learn to manage their money more effectively.

Interestingly, research also suggests that a child allowance policy in the US could reduce child poverty by more than 50%(2). This highlights the potential for allowances to have a broader societal impact beyond individual families.

Average Allowance Amounts by Age

While there is no set amount for an average weekly allowance, a common guideline is to pay children $1 to $2 per week for each year of their age(3). For example, a 7-year-old would receive $7 per week, while a 16-year-old would get $16 per week4.

Data from Greenlight, a debit card and financial app for kids, shows that in 2023 the average weekly allowance for kids ages 5-19 was $14.72 for families who use their app4. Nationally, the average allowance amount is $19.39 per week, with 35% of parents paying between $11 to $20 a week, according to the T. Rowe Price 14th Annual Parents, Kids & Money Survey(4).

Here's a table summarizing average weekly allowance amounts by age from various sources:

It's important to note that these are just averages. The actual amount you give your child will depend on your family's circumstances and what you expect the allowance to cover.

Expert Opinions on Allowance

Many experts believe that giving children an allowance is a valuable tool for teaching financial responsibility(7). It can help children learn to budget, save, and make informed spending decisions(8). Some experts recommend giving a consistent amount regardless of behavior, while others suggest tying allowance to chores or other responsibilities(9).

Beyond basic money management skills, allowances can also normalize conversations about money within the family(10). This open communication can help children develop a healthy understanding of finances and build confidence in discussing money matters, which can benefit them throughout their lives.

Benefits of Giving Children an Allowance

There are many potential benefits to giving children an allowance. Some of the key benefits include:

• Financial Literacy: Allowances provide children with firsthand experience in managing money. They learn to budget, save, and make spending choices(8).

• Responsibility: Children learn to be responsible for their own finances and make informed decisions about how to use their money(11).

• Goal Setting: Allowances can help children set financial goals and learn to save for things they want(11).

• Independence: Managing an allowance can foster a sense of independence and accomplishment in children(11).

• Motivation: Using an allowance as an incentive can motivate children to complete chores and even potentially improve their academic performance(12).

Drawbacks of Giving Children an Allowance

While there are many benefits to giving children an allowance, there are also some potential drawbacks to consider:

• Entitlement: If allowances are given unconditionally, children may develop a sense of entitlement and expect to receive money without any effort(13).

• Wasteful Spending: Without proper guidance, children may spend their allowance impulsively and not learn to save or budget effectively(14).

• Pressure to Spend: Some children may feel pressure to spend their allowance quickly, which can lead to poor financial habits(13).

• Budgetary Strain: A monthly allowance, while potentially helpful for teaching long-term budgeting, could put a strain on a family's budget, especially those with limited resources or several children(15).

Common Pitfalls to Avoid

When implementing an allowance system, it's important to be aware of some common pitfalls that can hinder its effectiveness:

• Giving Too Much: Providing an excessive allowance can lead to wasteful spending and a lack of appreciation for the value of money(11).

• Not Holding Kids Accountable: Failing to enforce the rules and expectations around allowance can lead to poor financial habits and a sense of entitlement(11).

• Not Teaching Responsibility: If children know they can always rely on their parents for more money, they may not learn to manage their finances responsibly or make informed spending decisions(11).

Methods for Determining Allowance Amounts

There are several different methods for determining how much allowance to give your child. Some of the most common methods include:

• Age-Based: This method involves giving $1 to $2 per week for each year of the child's age(8). This is a simple and straightforward approach that can be easily adjusted as the child grows older.

• Chore-Based: With this method, children earn their allowance by completing specific chores or tasks(16). This approach can teach children the value of work and the connection between effort and earning.

• Goals-Based: This method involves setting an allowance amount to help children reach specific financial goals, such as saving for a new toy or a special outing(17). This can help children learn to prioritize their spending and delay gratification.

It's important to remember that allowance is more than just a reward system for chores(18). It's an opportunity to give children financial independence and the power to make their own decisions about how to use their money.

Teaching Children About Managing Their Allowance

It's important to teach children how to manage their allowance effectively. Here are some tips for teaching children about money management:

Set Clear Expectations

Discuss with your child what the allowance is for and what expenses they are expected to cover(19). This will help them understand the purpose of the allowance and how to use it responsibly.

Encourage Saving

Help your child set savings goals and learn to put aside a portion of their allowance for future needs or wants(20). This could involve using a piggy bank, opening a savings account, or setting up a simple savings tracker.

Teach About Budgeting

Show your child how to create a simple budget to track their income and expenses(19). This could involve using a notebook, a spreadsheet, or a budgeting app.

Talk About Giving

Encourage your child to donate a portion of their allowance to charity(20). This can help them develop a sense of generosity and social responsibility.

Introduce Financial Tools

Allowances can also be a great opportunity to introduce children to different financial tools, such as checks and debit cards(21). This can help them learn how to use these tools responsibly and prepare them for managing their finances as adults.

Let Them Make Mistakes

Allow your child to make some financial mistakes and learn from them(19). This will help them develop problem-solving skills and understand the consequences of their financial decisions.

Conclusion

Giving children an allowance can be a valuable tool for teaching them about money management and financial responsibility. By carefully considering the factors involved, such as your child's age and your family's financial situation, and choosing an appropriate method for determining the amount, you can help your child develop good financial habits that will benefit them throughout their lives. Many parents have strong opinions about not giving what they consider to be a "handout." (22) However, framing allowance as a learning tool rather than a reward can help shift this perspective and emphasize the long-term benefits of financial education. Ultimately, the goal is to equip children with the knowledge and skills they need to make informed financial decisions and become responsible and independent adults.

Works cited

1. Studies Show Why You Need to Start Giving Your Kids an Allowance Today - iMOM, accessed January 22, 2025, https://www.imom.com/why-need-start-giving-kids-allowance/

2. Evidence Review Top 5 Facts: Child Allowance - Prenatal-to-3 Policy Impact Center, accessed January 22, 2025, https://pn3policy.org/evidence-review-top-5-facts-child-allowance/

3. How to Set Kids' Allowance Rates By Age – Microsoft 365, accessed January 22, 2025, https://www.microsoft.com/en-us/microsoft-365-life-hacks/budgeting/setting-kids-allowance-rates-by-age

4. Average allowance by age for kids and teens - Greenlight, accessed January 22, 2025, https://greenlight.com/learning-center/earning/average-allowance-by-age-for-kids

5. The Average Allowance for kids and teenagers | A parent's guide - Till Financial, accessed January 22, 2025, https://www.tillfinancial.com/financial-literacy/the-average-allowance-for-kids-and-teenagers-a-parents-guide

6. Chores and allowance by age: How much allowance for chores? | GoHenry, accessed January 22, 2025, https://www.gohenry.com/us/blog/chores/chores-and-allowance-by-age-how-much-allowance-for-chores

7. Giving Kids an Allowance Offers Valuable Life Lessons - EKS Associates, accessed January 22, 2025, https://eksassociates.com/2022/04/28/giving-kids-allowance-offers-valuable-life-lessons/

8. Allowances and Kids: How to Build Health Habits Early - Investopedia, accessed January 22, 2025, https://www.investopedia.com/guide-allowances-and-kids-5217591

9. Should You Pay Your Kids an Allowance? | Resources | AICPA & CIMA, accessed January 22, 2025, https://www.aicpa-cima.com/resources/article/should-you-pay-your-kids-an-allowance

10. The Power of Kid's Allowance (Hint: It's Not About Chores) | Abacus Wealth Partners, accessed January 22, 2025, https://abacuswealth.com/the-power-of-kids-allowance-hint-its-not-about-chores/

11. Should You Give Your Kids an Allowance? - Money Fit, accessed January 22, 2025, https://www.moneyfit.org/should-you-give-your-kids-an-allowance/

12. The Pros And Cons Of Giving An Allowance - Rocket Money, accessed January 22, 2025, https://www.rocketmoney.com/learn/personal-finance/the-pros-and-cons-of-giving-an-allowance

13. Are Allowances For Good for Kids? - Bank of the James, accessed January 22, 2025, https://www.bankofthejames.bank/articles/are-allowances-for-kids-good-or-bad/

14. Allowance Pros and Cons: Should You Give Money To Your Kids? - My First Nest Egg, accessed January 22, 2025, https://myfirstnestegg.com/articles/give-kids-allowance-pros-con/

15. The Pros and Cons of Giving Your Child Money Allowance - Kiddie Kredit, accessed January 22, 2025, https://www.kiddiekredit.com/post/giving-child-money-allowance

16. Pros and cons of giving kids an allowance for chores - Greenlight, accessed January 22, 2025, https://greenlight.com/learning-center/earning/allowance-for-chores

17. Allowances and Kids: How to Build Good Spending Habits Early | Macaroni KID Takoma Park - Silver Spring, accessed January 22, 2025, https://tpss.macaronikid.com/articles/66c76d3c71d4226d37c98da4/allowances-and-kids-how-to-build-good-spending-habits-early

18. Chores and allowance advice/tips (kids are 4 and 8) : r/Parenting - Reddit, accessed January 22, 2025, https://www.reddit.com/r/Parenting/comments/1g8q3dr/chores_and_allowance_advicetips_kids_are_4_and_8/

19. Managing an Allowance - Schwab MoneyWise, accessed January 22, 2025, https://www.schwabmoneywise.com/teaching-kids/managing-allowance

20. Teach your kids about money with an allowance - M C Bank, accessed January 22, 2025, https://www.mcbt.com/Teaching%20Kids%20Money%20Blog

21. Should Kids Get Allowance | PNC Insights, accessed January 22, 2025, https://www.pnc.com/insights/personal-finance/spend/should-kids-get-allowance.html

22. The New Rules of Allowances for Kids - HerMoney, accessed January 22, 2025, https://hermoney.com/connect/family/new-rules-of-allowances-for-kids/