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.
"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.
"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."
"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."
"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."
"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."
"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."
"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."
"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."
"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."
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