April 17, 2018

You can’t expect your kids to develop sensible saving and spending habits without having money to learn with. That’s why giving your kids an allowance is an important part of their financial education. At its core, giving your kids an allowance teaches them how to accumulate money and how to use it wisely. It’s the first major step towards financial responsibility and independence.

SageVest Kids offers some helpful guidance for parents about when to start giving your kids an allowance, how much allowance to give your kids, whether to tie allowance to household chores, and more. 

Why Give Kids An Allowance?

According to a 2017 study by Rooster Money, 70% of American parents give their kids an allowance [1]. An allowance helps your kids learn basic budgeting skills. It also fosters personal skills like patience and perseverance, as your kids learn to set future financial objectives and save towards them.

When Should You Start Paying An Allowance?

A recent University of Cambridge study determined that your child’s ‘habits of mind’ towards money form before age 7 [2]. We typically recommend you introduce a small allowance around age 5.

How Much Allowance Should You Pay Your Kids?

Giving your kids an allowance is an ongoing commitment, so think carefully about what you can afford, relative to your own wealth. The amount you choose should also align with family values and should promote realistic lifestyle expectations. Also, be sure the amount you elect is sufficient to allow your kids the freedom to make independent decisions – including money mistakes!

An easy initial approach is a dollar a week for every year of your child’s life.

How Should You Pay Your Kids An Allowance?

Young children need a cash allowance. This also helps familiarize them with coins and bills, and reinforces basic math skills.

For tweens, consider paying their allowance via a shared digital option like Threejars or FamZoo.

Teens should be ready to manage their own bank account (albeit with ongoing supervision), making electronic funds transfer an easy option for busy parents. Online banking, apps like Mint.com, and other digital resources are all helpful ways of quickly and easily monitoring your teen’s saving and spending habits.

How Often Should You Pay Allowance?

Young children should be paid weekly. Improve budgeting skills by gradually extending the time between allowance payments as your kids mature or improve their financial skills. Aim for twice-monthly payments by ages 11-13, and monthly payments by ages 14-16.

Don’t advance allowance if your kids run out of money. If necessary, you might want to consider a small loan for a significant purchase. This helps your kids learn about borrowing.

Should Allowance Be Tied To Chores?

Your kids live in your home, so it’s reasonable to expect them to undertake some age-appropriate chores to help keep the house running. Chores help your kids develop important life skills and personal responsibility.

In addition to these communal chores, you can also offer your kids ‘chores-for-more’. Give your kids the opportunity to earn extra cash by doing specific jobs like shoveling snow, washing the car, or babysitting younger siblings. Earning their own money encourages work ethic.

Should Allowance Be Tied To Other Requirements Or Accomplishments?

Ideally, your kid’s regular allowance is tied only to financial and purchase responsibilities. However, this is a personal parental decision. Some parents link allowance to:

  • Completion of communal chores to a satisfactory standard.
  • Good grades.
  • Specific saving goals e.g., 25% of their allowance.
  • Charitable giving.

Withholding allowance is rarely helpful as a punishment, unless your child’s engaging in inappropriate or dangerous behaviors.

How Should I Manage My Kid’s Allowance?

Review the frequency and amount of your child’s allowance at least annually e.g., on their birthday, or sooner if they’re ready to assume additional financial or purchasing responsibilities, or if they get a part-time job.

  • Use the review as an opportunity to provide feedback on how well your kids have done, money-wise.
  • Stick to positive feedback, while highlighting areas for improvement.
  • Review both the past year and coming year, so that you’re both on the same page about changing financial responsibilities and expectations.
  • Set a new budget together.

Most importantly, don’t micromanage! One of the key benefits of giving your kids an allowance is to let them make mistakes. Money mistakes in childhood and the teen years are far less costly than those made in adulthood.

What If I Don’t Want To Give An Allowance At All?

If you don’t want to give your kids an allowance, have your child assume responsibility for different aspects of family spending once they’re old enough e.g., grocery shopping. Your kids need to become money-smart through honest discussions, teachable money management moments, and by being a good financial role model yourself.

Giving your kids an allowance is a personal parental decision, but as an independent family-focused financial advisory, SageVest Kids believes that giving your kids an allowance is a vital teaching tool in your child’s financial education and future wellbeing. We invite you to contact our parent company, SageVest Wealth Management, to discuss how we can help you and your family achieve optimum wealth success.

[1] https://www.roostermoney.com/pocket-money-resources/allowance-report-us

[2] https://mascdn.azureedge.net/cms/the-money-advice-service-habit-formation-and-learning-in-young-children-may2013.pdf

Prepared by SageVest Wealth Management, a personal financial advisor for the DC area. Copyright 2018.


The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. This article is for informational purposes only. The views expressed are those of SageVest Wealth Management and should not be construed as investment advice. All expressions of opinions are subject to change and past performance is no guarantee of future results. SageVest Wealth Management does not render legal, tax, or accounting services. Accordingly, you, your attorneys and your accountants are ultimately responsible for determining the legal, tax and accounting consequences of any suggestions offered herein.

In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of (a) avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The provision of a link to any third party website does not mean that SageVest endorses that website. If you visit any website via a link provided here, you do so at your own risk and indemnify SageVest from any loss or damage incurred.