A question parents wrestle with is should you pay your kids an allowance?
Knowing what other families do can help inform your own family’s decision.
According to the T. Rowe Price 2022 Parents, Kids, and Money survey, 79% of parents pay their kids an allowance, while 21% do not.
Let’s look at some of the pros and cons of different family preferences.
Pros and Cons of Paying Kids an Allowance
A family considers many factors when deciding to pay their kids an allowance. Some factors are practical, such as the family budget and number of children; others are value-based, like a family’s money preferences and goals.
Here are 3 money preferences when it comes to paying your child an allowance.
- Earners – These families pay their kids an allowance, but they expect them to earn it.
- Managers – Children in these families receive an allowance without having to earn it.
- Members – These families do not pay an allowance because they expect their kids to contribute as household members.
Let’s dive deeper into each of these allowance preferences.
Earners
Pro: Teaches the value of money
Con: May cause an overemphasis on material success
Some families make their kids earn an allowance by paying for chores or grades. This approach has many benefits. It helps the child learn the value of money while developing a strong work ethic. It also gives the child hands-on experience when it comes to working, earning, and saving. Earning an allowance can open more teachable moments about managing money.
However, Earners may equate financial success to personal success. This can lead a child to prioritize working and earning money over other aspects of life like relationships, health, and personal growth as adults. Encouraging a balanced approach to life will help make children well-rounded.
Managers
Pro: Focuses on financial, investing, and business skills
Con: May not understand the value of money
These families give, rather than pay, an allowance. Although they don’t have to earn money, children in these families are expected to become good stewards of money. Giving an allowance offers Manager families a way to nurture budding investing, financial management, and business skills in their kids.
This approach does have its drawbacks.
For example, children in Manager families may not understand the value of money because they did not earn it. This may lead to poor decision-making, wasteful spending, and entitlement, which can be avoided through fostering financial education and gratitude.
Members
Pro: Nurtures intrinsic sense of responsibility, community, and contribution
Con: May lead to a delay in the development of financial skills
Member families purposefully do not pay their kids an allowance, viewing financial incentives as unbeneficial. These families value developing an intrinsic sense of responsibility, community, and contribution in their children. Member parents may direct their child’s energy toward self-initiation outside the family.
Also, many Member-style parents want to avoid a transactional relationship with their children, simplifying household dynamics so they can focus on guiding, leading, and parenting their kids.
Despite these advantages, children who grow up in Member families may gain money experience later than their Earner or Manager peers. This creates less opportunity to learn the value of money, practice financial responsibility, and gain greater independence. These shortcomings can be overcome by involving children in other financial activities, such as grocery shopping, budgeting, or visiting a bank.
There are no right or wrong allowance preferences. Instead, each approach represents a different set of family values and priorities. Of course, some families may use a hybrid approach. That’s okay too. Each family should do what works best for them.
For families that decide to use allowance as a learning tool, let’s look at different allowance methods for kids.
Allowance Method for Kids
Earner Allowance Methods
Chore-Based
Pro: Reinforces the concept of work and reward
Con: Tedious to track completed chores
Under this classic approach, kids are paid based on chores completed.
There are many ways to implement this method.
The most common is for parents to assign a monetary value to a given chore and pay as they are done.
Another approach is paying a flat fee for a given set of chores.
Either way, your child will learn that income potential varies depending on the complexity, time, and skill required for a task.
Goal-Based Allowance
Pro: Builds on child’s natural buying motivation
Con: Setting and fulfilling requirements may be time-consuming
Kids want money to buy things. A goal-based allowance helps them do so.
In this allowance method, the parent and child agree on a goal. It could be buying a video game or saving a hundred dollars.
Then, they identify requirements, usually tasks, that equal the value of the goal. Once they fulfill the requirements, the child receives an allowance in the form of the agreed-upon item or money. Scope a set of tasks may be a bit time-consuming, but good planning and a little creativity will help keep this approach engaging and quick.
TIP: Consider matching a portion of the money your child saves or invests from their allowance. This will encourage children to save.
Manger Allowance Methods
Age-Based
Pro: Earning potential scales with child’s age
Con: Allowance may need to be adjusted to meet the child’s goals
Under this method, parents pay an allowance based on age.
A five-year-old would get five dollars; a twelve-year-old would get twelve dollars.
This practical approach allows compensation to grow as the child ages, supporting greater independence. Although adjustments may be needed for specific financial goals.
Fixed Allowance
Pro: Easy to automate allowance payments
Con: May create financial dependency
With this method, parents give their child a fixed weekly or monthly amount.
This approach lends itself well to automatic transfers. Its overall simplicity makes it an easy allowance method for busy families. While financial dependency is a concern, setting expectations upfront can curb this risk.
TIP: Some parents opt to automate the allowance process by setting up recurring transfers or deposits into their child’s bank account or digital wallet. This method can also help children develop a savings habit.
Next, let’s explore how much parents are paying for allowance.
How Much Allowance Should I Give My Child?
Knowing the going rate can be informative when paying your kid an allowance.
According to the T Rowe Price survey, parents pay an average weekly salary of $19.36. Payments range from less than $5 to over $51.
TIP: Many teenagers’ first jobs pay minimum wage. When assessing how much to pay for an allowance, you may consider establishing your state’s minimum wage as the maximum. That way, your child will experience pay continuity or a raise when they get that first job.
Conclusion
Should you give your kids an allowance is a timeless question. From Earners to Managers to Members, each approach has pros and cons for families.
For those who decide to pay an allowance, knowing the various allowance methods and going allowance rates can help families determine what will work best for them.
Decide which money preference most resonates with your family, and let your child begin experiencing the benefits today.