Father teaches his kids about their allowance.

May 10, 2019

9 Allowance Strategies to Teach Your Children About Money

It's safe to assume that there are plenty of adults who remember earning an allowance when they were kids. Paul DeLauro, manager of Wealth Planning at City National Bank, is one of them.

"I got a dollar per week starting in elementary school," he said. "I had chores to do, mostly yard work for my dad."

Earning an allowance is one of the most straightforward ways to teach children about money, which is probably why this financial arrangement between parents and children is still a cornerstone of many households.

According to a 2019 survey performed by the allowance tracker RoosterMoney, the average American kid between the ages of four and 14 receives about $9.06 per week, and most of those earnings are tied to traditional chores: laundry, cleaning bedrooms and looking after pets, for instance.

"Children grasp, early on, that nothing is free, and that all choices are based on a corresponding sacrifice," DeLauro said. "Earning an allowance — not 'getting' an allowance — teaches children to respect hard work, to respect those who also work hard, and to embrace the concept of deferred gratification. It also teaches children to have respect for their parents and the work that goes into supporting a family."

And yet, as commonplace as this setup may be, parents may not be clear on what are the best allowance strategies to ensure that their children grow up to have healthy relationships with money. Could an allowance possibly reward bad behavior? And how is creating a strategy different for your 4-year-old versus your 14-year-old?

DeLauro provides insight into the general strategies parents should and should not put into effect for their kids' allowances, and gives examples for how to implement these tools as young children grow into young adults. By following his advice, you can help ensure that your child grows up earning an allowance that eventually provides them with the necessary money management skills to be a successful adult.

General Allowance Strategies to Follow

Always tie an allowance to activities that either build upon a deficient skill set or reward a child's strengths

"For example, an impatient child could get an allowance that help teach patience, and an artistic child could be assigned the duty of designing and maintaining the family garden," he said.

Focus on the repetitive nature of earning an income

"Chores should not reinforce a 'one and done' mentality toward work, but should foster a 'what's next' mentality instead," DeLauro said. "Make earning an allowance a component of a continuous project, such as doing routine yard work or loads of laundry."

Never equate an allowance with receiving a gift

"An allowance should be interpreted by the child as a reward for his or her evolving work ethic in fulfilling a necessary family need," he said. "Gratuitous gifts are fine, but they should be separate from the core economic engine driving a child's personal spending desires. Gifts should be sporadic, while an allowance should be a continuous affirmation for consistent work."

Encourage creating a reserve for future needs

"Teach the long game of money and don't teach that money merely serves as a short-term gratification tool," DeLauro added. "Kids should learn, for instance, to save 10 percent of everything they earn, or every gift they receive, and live off the remaining 90 percent."

Open a checking account for your child staring at age 14

"For ambitious parents, this age is the time to set 'stretch goals,' with additional matching funds deposited directly to the child's new checking account," DeLauro advised. "Many children who are this age, for example, mow lawns in the neighborhood or babysit for extra money. These are ideal activities to incentivize responsible money making and the parents can reinforce that by contributing matching dollars into the child's first checking account."

Age-Based Allowance Strategies

Ages 3 to 6: Communicate rudimentary budgeting

"The core lesson to impart is that money is a finite resource that comes with tradeoffs," DeLauro said. "Tell your kids, 'Spending money on A means you don't get B. So, which do you prefer?' This teaches children to discriminate between choices and to live within constraints."

Ages 7 to 10: Introduce work ethos

"Now is the time to communicate with children that nothing in life is free," DeLauro said. "If you want A or B, you must earn the money to acquire A or B. Working through tedious tasks is taught in school, but a child needs to associate that same work ethic with income-earning as well."

Ages 11 to 14: Encourage outside earning where possible.

"Mowing laws, babysitting, cleaning garages for neighbors, and so on, are good examples of outside earning opportunities," he said. "This is the time to motivate children towards self-reliance."

Ages 15 to 18: Reward academic excellence and promote an after-school job

"You might consider an allowance based on grades or other measures of impressive school performance," DeLauro said. "If you believe that cultivating a rudimentary work ethic is also critical at this age, then requiring a child to hold some sort of extracurricular job to supplement his or her income might be something to consider. Also at this age, make sure you don't lavishly gift unearned cash to supplement a child's emerging lifestyle. Money should still be based on work."

Thank you for subscribing!
Error. This is not a valid email address. Please try again.
Error. Please make sure all fields are filled out and try again.
Subscribe to Our Newsletter

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.