My seven-year-old daughter, Tiffany, has been asking for an allowance. Two of her best friends get allowances and she wants one too. I want Tiffany to learn the value of money, yet I wonder if she’s too young for an allowance. I’m afraid she’ll fritter it all away on candy and junk. What are your thoughts on the benefits and drawbacks of allowances? And if you were to give one to a seven-year-old, how much would you give?
— wondering about money in Sacramento
An allowance can be an excellent tool for teaching a child about money and how to manage it wisely. Allowances give children the opportunity to practice math skills, to understand money, to practice handling and managing money, to learn about saving and spending, and to understand the basics of budgeting. Having some of their own money can also address children’s need for increased control over their lives. They’re no longer at your total mercy when they want something that costs money. When children have access to their own money, it can cut down on the kind of endless negotiations that often take place when parents go shopping with young children.
Many people agree that six or seven is an appropriate time for children to start receiving an allowance. It is at about this age that children start to grasp the basic mathematical principles necessary for counting money, making change and comparing the amount of money they get for an allowance to the cost of the things they want to buy. Because six and seven-year-olds have a more sophisticated sense of time, they are more able to anticipate and wait between allowances, and also to think about saving to get something more valuable, rather than just spending their whole allowance right away.
Kids this age understand more about cause and effect and so can begin to comprehend that a finite amount of money comes into the family and is allotted for their allowance. They also have better memory and are more organized, and are therefore less likely to lose their allowance.
Still, giving an allowance is a personal choice each family has to make. Some parents feel that giving an allowance encourages consumerism-that “having money in your pocket” makes you want to spend it, that giving children an allowance encourages them to focus on material goals. Other parents find it difficult to keep track of their child’s allowance-when to pay it, how much they’ve paid or how much they owe. And in some families, giving kids “spending money” is either not a priority or not in the family budget.
If you’re considering giving your child an allowance, here are some things to consider:
. Think about the reason you’re giving your child an allowance. Some parents give their children an allowance, separate from any work they do around the house, so they can learn the basics of money management. Others set up a system where the money is a “paycheck” for doing chores and helping out the family. When kids can demonstrate that they’ve completed their chores, they “earn” their allowance for the week. If they haven’t done their chores, their allowance is docked. Either system can work.
We like the sense of community in the system where everyone in the family helps out around the house, in which chores are done in the spirit of supporting the family, rather than to earn money. In this system, the allowance comes regularly (despite the child’s success or lack of success with chores) and affords children a chance to practice making decisions and managing money.
What often works in families is having “regular” chores in which everyone pitches in for the good of the family, and then “special” chores that can be done in addition to those, for a predetermined monetary reward. In this scenario, Tiffany is expected to sort the weekly recycling and make her bed every day, but she has the opportunity to earn 50 extra cents for vacuuming out the car or raking the front yard.
. Be clear about how your child’s allowance can be used. Parents have different expectations about how allowances should be used. Some expect their children to pay for after-school outings and activities, to pitch in to pay for extras like designer jeans instead of “ordinary” jeans, or to buy “special” foods in the grocery store. Some families expect children to buy all of their personal items and other families don’t expect their children to buy anything in particular with their allowance, but instead, give the children the freedom to use their allowance as they see fit. These decisions will be made taking into consideration both what you want to teach your child and your child’s readiness to take on certain responsibilities.
. Choose an amount that reflects your expectations about what your child will be paying for, as well as your family’s resources. If you expect your child to pay for all of her non-essential purchases (clothing, snack food, entertainment) with her allowance, you’d need to pay her more than you would if you planned to keep picking up those expenses yourself.
. Decide how much control you want to have over the way your child’s allowance is spent. If you want your child to have an allowance, but are concerned that the money will be “frittered away,” you can set certain parameters on how the money is to be spent. Some families do this by limiting the amount, giving only as much as they feel comfortable letting their children control (a small allowance can only buy so much candy). Others limit the things children can buy with their allowance, either through definite rules: “No war toys with your allowance,” or by designating one particular place-like a toy store, a stationery store, or hardware store as the place where the allowance can be spent. Still other families choose not to place any limitations on the allowance and let their kids experiment, figuring they can’t do too much damage with the amount of money they’re being given.
. Use your child’s allowance as an opportunity to teach values.
One system we’ve found to be highly successful is the three envelope (or three jar) system. A child is given a set amount of money each week. Each week, a third of the child’s money goes into an envelope earmarked for long-term savings (this could be a college fund or a “when you graduate from high school” fund). Some parents match this amount with equal contributions into the child’s savings account. The second third goes into an envelope designated for charity. After six months or a year, this money is given away to a social cause your child gets to research and choose. (Sometimes parents match this amount of money, too.) The remaining third of the money is your child’s to spend. She can spend it immediately or she can save it up for several weeks or months for something she wants to buy. This system gets the child used to savings, reinforces values about giving, and also gives the child some cash to spend.
. Use the allowance to teach money management skills. We do a lot of things with money that isn’t clear or visible for our children. Giving our child an allowance gives us one more forum to talk to kids about how we make decisions about money. “When I go into a store and I see something I suddenly feel I ‘must have,’ I never buy it right away. I go home and wait a few days to see how I feel about buying that item. Most of the times, it doesn’t seem nearly as important to me once I leave the store.”
We might talk to our children about the importance of savings: “Before I even bring any money home to our family, money is taken out of my pay to save for a time our family really needs it.”
Or we might even share some mistakes we’ve made with money: “Remember that time I ran out and bought that exercycle and then only used it to drape my clothes on? I bought it on an impulse but never really thought through the fact that I’d rather get my exercise outside – walking or riding a real bike.”
. Let children make mistakes with their money. Don’t pre-empt children’s choices so much that they can’t learn anything from their purchases. Making mistakes as consumers is one of the ways that children learn about money. Making some reasonably-priced bad purchases can provide a child with rich learning experiences. Buying a toy that breaks or buying one that looks like its going to be a lot of fun, but isn’t, provides a real opportunity for a child to learn about advertising, manufacturing standards, and the inability of “things” to bring us lasting happiness.
Give your child a small enough allowance that you can feel okay with her making mistakes with her money. When this happens you can gently talk with her about her disappointment and about how she might go about deciding on a purchase next time. In this situation, if we avoid preaching or “I told you so,” the experience can provide rich learning possibilities on its own.
For a related topic, see “Responding To Children Who Want To Buy Everything.”