Allowance Basics for Kids:
Beginning Money Education

The allowance basics for kids are built on the tried and true kid money principle of allowances. Nearly every parent today grew up with an allowance. And nearly every kid has asked for one - usually because their friends are getting an allowance.

But...how do you know when to start giving an allowance? How much should it be? What should kids have to pay for out of their allowance? Should they be required to tithe or save certain amounts out of it? Should it be tied to completing certain chores?

Here are some allowance basics for kids to get you started. Just remember that you will need to adapt any suggestions to fit your family and your goals.

With that in mind, starting an allowance before this age doesn't help promote money management skills in kids because they don't have the necessary understanding of the value of money. The possible exception to this is younger siblings. This is not because they will learn faster (although many do), it's to keep family peace. There is no harm in giving allowances earlier - as long as the expectations on what the kids will understand and appreciate is kept in line. Also keep in mind that the other allowance basics for kids outlined here likely won't apply to younger kids.

Allowance basics for kids - Tip #2: How often should an allowance be paid?
A weekly allowance is the standard. Going much longer than that, especially for the younger kids, makes it harder for them to understand what they are getting and what it should cover.

This doesn't need to be more specific than a day of the week, but it needs to be the same day of the week every week. Maybe it's after breakfast on Saturday. Be sure to pick a time that can be adhered to without much fluctuation. Weekdays usually are harder to adhere to because there is more stuff going on - getting everyone out the door in the morning, games or practices at night, etc. This will help it get paid on time - and prevent it from being paid more than once.

Allowance basics for kids - Tip #3: How much? What should kids have to pay for with their allowance?
These questions are so tied together that it's easiest to answer them together. When children are younger, they may be expected to pay for very little: the occasional candy bar or soda, stickers or other trinkets, or very small toys. As they get older, kids will be expected to pay for more.

To make allowances successful, kids have to have the right amount of funds to be able to pay for what is expected. Expecting a young teen to pay for school clothes on a $10 weekly allowance won't work. Just as giving a 6 year old a $20 weekly allowance and not expecting them to pay for their own CDs won't work.

With that in mind, allowances need to be adjusted based on age and on what the allowance will cover. Starting out, allowances can easily be based on age. At the age of 6 or 7, a dollar per year of age seems a little steep. But half of that amount doesn't. It's enough to get the kids started in understanding money and enough to cover the costs of little things that they want.

As kids progress into the ages where they are developing their own tastes and styles, they can be expected to manage more of their own expenses - and thus need more money. This is where age can't be used as an easy way to calculate an allowance - or at least not as easily. Things like going to the movies, eating out, Starbuck trips and clothing should be taken into consideration.

Some of these details really start to go beyond the allowance basics for kids. If you need some additional suggestions or just want to read more on how much allowance to give, see our tips for kids and for tweens and for teens.

Allowance basics for kids - Tip #4: Should parents require tithing or saving from an allowance?
In this area, probably more than in any of the other allowance basics for kids, parents will need to use their own family values as the guiding principle. This is especially true for tithing.

If your family believes that tithing is a key part of your values and that it is not optional, then having the children contribute in the same manner as the parents makes sense. But, not all children will be willing to part with some of their allowance - even if it's a small percentage. Getting them into a habit of giving is part of their money education.

Savings are less of family principle and more of a financial principle. Kids need to learn to save as early as they can. Their goals at young ages can be simple - toys that cost more than a week's allowance, for example. The key is to teach them delayed gratification so that they can learn to save for larger things later in life. Eventually, these could include a car and part of their college funds.

If you do require that a portion of the allowance is for tithing or saving, this needs to be factored into what kids are expected to pay for and the overall allowance total. Be sure that the net allowance (after tithing and saving) is sufficient to cover the expenses you have agreed that the child will pay. Otherwise, one financial principle is being compromised for another.

Allowance basics for kids - Tip #5: Should an allowance be tied to chores?
If ever there was a hot debate on allowances, this is it. There are equally compelling arguments on both sides of the question. Your family will need determine which method works best for you - and revise over time to find the best balance. Here are some things to consider:

• Are you willing to assign chores and keep track of actual performance? This can be a deal-breaker. It can be difficult enough to remember to pay an allowance once a week - it gets much more complicated when measuring performance is attached.
• Do you feel like certain chores are just part of being in the family - and that they don't deserve a monetary reward? In this case, the kids may be expected to do certain things - such as making their beds and keeping their rooms clean - for free. But other chores - raking leaves, shoveling snow - can earn money.
• Don't confuse money management principles with instilling a good work ethic. Often, these do go hand-in-hand. But be sure that you are clear on what you are trying to accomplish in each instance. Teaching the kids that a CD will cost them three weeks' worth of allowance is different than teaching them that there is value in hard work. And, even kids who hold jobs for their money can blow it on frivolous items.

If you do decide to tie to an allowance to chores, get a system in place. The biggest part of the challenge is to come up with a list of chores and then tracking them.

Allowance basics for kids - Tip #6: Are advances on the allowance allowed?
The recommended answer here is "no." Advances don't help promote the ideas of money management or delayed gratification. They can also be a nightmare to track payback on. If you do decide to have exceptions to the "no advance" rule, try these tips to make it easier:

• Allow only advances that can be paid back in a certain timeframe - say one month's worth of allowances.
• Allow advances only for very special or unique events - not material possessions. Events are experiences that can last in memories for a very long time. They are also less likely to be available while the child tries to save money - think about that concert that you remember still today. The iPod or computer will still be around 3 or 6 months from now while they save their money.
• Charge interest - maybe. This really depends on the child and what you are trying to teach them. Generally, adults have to pay interest on money they borrow. But giving up their allowance for a month to pay the advance back may be enough of a lesson in borrowing without tacking interest onto the end. If you are going to charge interest, make it a round number - like $1 - instead of a percentage. The lesson is still the same without the complications of compounding.

The purpose of an allowance is to teach money management, not to provide another avenue for punishment. However, if a child breaks an item that needs to be replaced, they can be expected to pay for the damage out of their allowance. That is a money management and life lesson. After that, any discipline beyond paying for the damage should be handled separately.

Allowance basics for kids - Tip #8: Can the child use the money anyway they want?
If you are going to require that the child set aside some of their allowance for tithing or saving, be sure that is communicated. Other spending limitations should be carefully considered - although a veto is appropriate for anything in violation of your family principles or that could be harmful. This is the opportunity for kids to learn money management without risking their food and shelter in the process.

Allowance basics for kids: Moving forward
The key to kids' allowances is to get started - although it is never too late to start teaching kids about money. Revise as you go along based on what you learn and on areas where the kids are struggling or doing well (see our guidelines by age for kids and for tweens and for teens for some helpful tips.) These allowance basics for kids should just be the starting point for a great money education for your family.