When Should I Start Giving An Allowance?

Parents want to know when the right time is to pay allowance.  It’s sort of like knowing when the right time is to get married or have kids.  It depends on the family and on the individual kids.

For most kids, when they are aware that things cost money, they’re ready to have some money of their own.  And the right amount is usually about a dollar per week per year of age.  So a five year old could have as much as $5 per week.  The next step is crucial!  Don’t buy the child all of the discretionary purchases you have in the past.  It’s up to her to buy those things.  And define what it’s ok and not ok to buy.  So if she can buy candy, small toys, and stickers, tell her so.  If she’s not allowed to buy a puppy or a pocket knife, tell her that.  Leave the lines of communication open so she can ask if something is an approved purchase.  Don’t bail her out and don’t reimburse her for inappropriate purchases.  So if she buys a cheap little toy and it breaks within the week, don’t give her back the money.  If it’s truly faulty, you can take her to the store and help her get a refund, but you shouldn’t be “the store”.  If she buys a switchblade (not an approved purchase), her choices are to see if the store will take the item back and give her a refund, or you take the item and she doesn’t get a refund.

For families that are struggling to make ends meet, giving money to the kids should be a rare or nonexistent occasion.  But the kids can still be learning about financial responsibility.  One way is to discuss some of the family finances.  For instance, if the grocery budget is on the agenda, have the kids help plan meals around coupons or sales in neighborhood grocery stores.  One way to let kids have a little money of their own in a sight family budget is to tell them they can have a portion of money they “find” for the family.  So if your teenager finds a way to save on the electric or water bill, he gets a quarter of that money back the first month the savings hit.  Your family still comes out ahead, he’s more financially aware, and he gets some money to spend as he wants – within what you allow.

Keep dialog open.  Let them talk about their money with you.  Be willing to talk with them about some of your financial situation.  It’s important to remember that there’s a difference between talking about money and lecturing or criticizing.

Kids will make some mistakes with their money.  But it’s easier for them to learn from those mistakes now – while you’re feeding, clothing, and housing them – than when they’re on their own.

There’s lots more on this issue and others to teach kids finance in The Ultimate Parenting Map to Money Smart Kids available at www.brightleitz.com .

About the author

Linda Y. Leitz, CFP®, EA, CDFA

Linda Y. Leitz is a fee-only Certified Financial Planner™ and has been in the financial industry since 1979. She is also enrolled to practice before the Internal Revenue Service. Before becoming a financial professional, Linda held several executive positions in the banking industry. She began her career as a bank examiner. Linda has a BBA in Business Administration from Principia College and an MBA from Southern Methodist University.
As a fee-only financial planner Linda is a member of the National Association of Personal Financial Advisors, the Financial Planning Association, the National Association of Tax Professionals and the Alliance of Cambridge Advisors. As a leader in the financial planning industry, Linda is the author of the book titled "The Ultimate Parenting Map to Money Smart Kids". She has been quoted in several national publications including the Wall Street Journal, U.S. News and World Report, and Morningstar Advisor and she has appeared on CSNBC. She also works as a volunteer instructor to new financial advisors with the Alliance of Cambridge Advisors.

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