The Ins and Outs of Allowance: What Homefront Dollars Teach Children and Teens

What is a good age to start giving an allowance?
The purpose of allowance is to teach children and teens how to save, spend, and budget money. I think ten-years of age is an age appropriate time to begin learning these things and a good time to start an allowance.

How should a parent determine when to increase or decrease an allowance?
If the child or teen is running short -- spending too much and not saving -- then talk about and work on a budget together, and see if more money is needed. Adjust accordingly.

Should allowances be based on doing chores?
Importantly, household chores should NOT be connected to an allowance. Everyone in the family needs to help out in some way, so mom and dad are not doing most of the work. It works well if each child chooses and takes responsibility for several big chores that he or she likes to do and does well. Teens need to learn adult survival skills. So, give them plenty of responsibilities around the house, and help them learn responsibility – the ultimate survival skill. And don’t forget: Allowance should not be connected to household chores.

Should allowances be based on good behavior or grades? Similarly, should an allowance be tied to punishment?
Allowances should never be connected to good behavior or grades! Parents, select a different way to reward children and teens for good behavior and grades. It is fine to give them a monetary reward for the good grades, but don’t say it is their allowance. Remember: Allowances should be put in place to teach children and teens how to save, spend, and budget. Similarly, allowances should never be tied to punishment. Don’t withhold an allowance, if your teen has done something wrong. Select a different way to communicate your thoughts about your teen’s negative behavior.

If a child or teen gets a job, should an allowance stop?
I like the idea of continuing with allowance even though a job now figures into the picture. They key is working together (parent and teen) on a budget. With more money coming in the teen’s door (from a job), then more money can be saved and perhaps invested. Teens can learn to buy stocks or invest in other ways. A watchful eye on spending should be always executed. Parents want to encourage saving and investing. Jobs increase these possibilities.

Should you give cash to a child, or deposit money in a savings account for them?
Yes, if it is done in a way that nurtures the habit of saving money and setting an example of saving.

Should there be rules set for what an allowance can be spent on, or is it just "fun money?"
Yes. A general rule of thumb is to spend one-half to two-thirds or an allowance, and save the rest. Importantly, children and teens also need to learn how to make decisions and handle or learn from money mistakes. For example, if they overspend, and haven't saved enough to buy a sibling a birthday present, they've not managed their money well, and need to make some shifts. Giving them the opportunity to call the shots does teach children and teens alike valuable lessons about money management.