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Allowance: some say kids should earn, and some say kids should not get an allowance. From my research, it seems like there is no "right" answer here. It fully depends on your family.
I have done some research and I am sharing it below in hopes it empowers you to make the best decision for your family.
The information below includes a lot of discussion on chores. Still deciding if you want your kids to do chores? Check out my post on the benefits of chores.
Allowance can be started as early as kids start showing an interest in money and begin to understand the concept (as early as 3 or 4). Some studies suggest that kid's money habits are set by age 7, so it is good to start early.
The Argument for Giving an Allowance
It's an opportunity to teach your kids about money
It's an opportunity to teach your child about saving - they can see their money grow by giving them physical money
It's a great opportunity to give your kids the responsibility of a debit card with one of the services designed for kids
You can use the payment of allowance to discuss real-life money management skills such as spending, saving, charity, taxes, budgeting, and wants vs. needs
Chore-based allowance teaches your child that money is earned through working
When your child wants something, they can save up for it using their allowance rather than just turn to you to buy things
The Argument for Not Giving an Allowance
Kids should do chores because they are a member of the family
Giving kids money may make them entitled or feel as though they should get money for nothing
If you decide to give an allowance, there are a couple of options that are supported by experts on how to do it. Which way you choose to give an allowance is whichever works best for you and your family.
Allowance tied to chores:
This method is pretty simple - your child does their chores then they get an allowance. Your child does not do their chores, they get nothing. Some believe this teaches the value of hard work. Others believe this teaches children they should be awarded for doing the bare minimum.
Another option is that they only get paid for certain chores, but not the basics that kids should do just because they are part of the family. This seems to be the more favored method tied to chores. Almost all of the research I did warn against giving money for basic chores.
If you choose this route, some tips:
Make sure the chores are age appropriate - check out my post on chores!
Younger children may need to be paid immediately to make the connection that when they do work, they get paid.
Decide on how to compensate children for chores - consider what you will do if your child completes some chores but not all of the chores
Allowance not tied to chores:
The argument with this is mainly that children should do things around the house (clean their room, feed pets, etc.) because they are a member of the family and that is the expectation. But parents still want to teach their children about finances and how to manage money. This method can be a great way to teach about financial literacy even for homes that choose not to do chores.
If you choose this route, some tips:
Give your child an allowance in relation to their age ($1/year or 50 cents/year of age is recommended). So if your child is 5, they get $5/week.
Do not use this allowance as a punishment (ex. you will not get an allowance this week because you are not behaving)
Be sure it is clear that the money is not tied to chores, but this is money they get to learn financial management. If your house does chores, make sure they know these are expected as being part of the family.
Hybrid:
This method of giving an allowance combines the two methods above. Your child gets a base amount each week, but they can do extra work to earn more money.
If you choose this route, some tips:
Decide what tasks can earn extra money, and how much money
Make it clear that some tasks are done as a contributing member of the household
You are the CEO of the house, so you get ultimately get to decide which tasks are money-earning and which tasks are done as a contributing member of the household, but you can discuss it and come up with tasks and amounts with your child
Choose age-appropriate tasks
General Tips
If you are giving an allowance but not using it to teach about finances, it is not beneficial
Be consistent - give the same amount, on the same day in regular intervals - do not give them their allowance early (similar to payday loans, which is not a good habit to teach)
Help your child set goals for their money
Some suggest making three funds for your child: spend, save, and donate - One article I read, suggested that 10% goes to charity, 30% goes to spend, 30% goes to medium-term savings (you help them decide something to save up for), and 30% goes to long-term savings (you can help them set up a savings account at the bank for this).
Teach them about banking - show them how to open a bank account, where to track the money online, and how to use a debit card
I recommend doing this when kids are older and have had an opportunity to learn about bills and coins and see their money grow.
Make sure you are not giving them too much money - they should need to save up for things they want and have to make decisions about what to buy/not buy
Consider what your children will be responsible for paying for and what you will pay for - make these expectations clear
Make sure allowance is a positive experience - do not use it as a punishment
Be a role model! Kids learn from watching us.
I read a lot of different sites and articles on allowance and there does not seem to be any consensus on one method that works best. So whichever you choose (or if you choose not to give allowance), there is no wrong answer. The most important thing is to find some way to teach your child(ren) about real-life financial management skills - however, that looks for you.
Personally, I believe my family will use a hybrid method when the time comes. I also plan to use the spend, save, donate method to help teach money management. When the time comes, we will see if that works and adjust if it does not.
Remember Mama, you are doing a great job! You got this!
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