Smart Strategies for Paying Your Child an Allowance

The practice of parents paying their kids an allowance is still going strong.

A recent Wells Fargo survey found that 71% of parents who have children between the ages of 5 and 17 give them an allowance, averaging $37 a week. However, about half of parents who responded to the survey struggle to discuss money in a way their children will understand.

Offering your kids an allowance can be a great way to teach them financial responsibility and introduce conversations about spending and saving money.

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If you have kids at home, consider these ideas to set an allowance strategy.

Establish guidelines for earning it

A key decision is whether you will link your child’s allowance to household chores or other tasks, which can help kids understand the relationship between money and work.

Some parents feel that everyday chores, such as making the bed or washing the dishes, are part of a child’s responsibilities as a family member and shouldn’t come with a financial reward. Alternatively, you could pay your child for performing tasks that go beyond daily expectations.

Kate Hamilton, entrepreneur and author of The Imperfect Parent, suggests that starting at the age of 5, your children could take on extra weekly tasks, such as raking leaves in the yard. To help kids learn about how they would be compensated in the workplace, she says that you could offer them a fixed rate for performing tasks — say, $10 an hour for two hours of doing laundry and washing your car.

William Stern, 45, and his wife, Eunjin, 43, also believe in an “earned allowance” system for their three sons, Solomon Amschel, 11, Sidney Arthur, 8, and Sebastian Asher, 5.

Rather than provide a set dollar amount, the Sterns, of San Diego, pay the boys a weekly allowance that varies depending on the tasks they complete outside their usual chores. They may, for example, get $20 for performing acts of service, such as picking up trash in their neighborhood.

The Sterns believe this method will help their children make the connection between putting in extra effort and earning money.

Decide on rules for spending and saving

You’ll also need to determine whether you’ll set parameters around how your kids can use their allowance.

By working with them to devise a breakdown of how they’ll allocate their money, you can impart valuable lessons on setting a budget and sticking to it. And if they save a portion of their allowance, they’ll learn firsthand the satisfaction that comes with setting a goal for a future purchase and reaching it.

Hamilton suggests having your kids divide their allowance into money to spend, money to save and money to share. They could, for example, spend 60% as they see fit, stash away 30% in a savings account, and share 10% by donating it to a charitable cause or to their house of worship.

Otherwise, you could give your kids free rein, which can help them learn about the consequences of their financial decisions while the stakes are low. If they use all their weekly allowance on video games, for example, they may have nothing left to spend during an outing with friends.

The Sterns use this strategy, letting their sons spend their allowance as they wish. If the boys run out of money, they don’t get more until their next allowance payment.

Choose a payment method

Along with setting ground rules on how your children may earn or spend their allowance, you’ll also need to determine how you will pay them. Especially for kids younger than 10, Hamilton recommends providing cash because it’s tangible; they can easily see where their money goes, and they can’t overspend it.

As kids reach their teenage years, you might introduce payments via a peer-to-peer payment service, a bank account or debit card so they can learn about managing money with these electronic methods. P2P services, such as Apple Cash and Venmo, are becoming more popular, with about one-fourth of parents paying their kids an allowance this way, according to the Wells Fargo survey. If your child uses a P2P app, make sure they understand how to avoid scams, sending money only to people they know and trust.

If you’d rather stick with a bank and you have a qualifying Chase checking account, your child can use the Chase First Banking debit card, which is available to kids ages 6 to 17 and has no monthly fee. You can set up regular allowance transfers to the card, establish savings goals and even assign recurring chores, paying your child for them once they’re complete. You can also set limits on where and how much your child can spend, as well as monitor their activity.

Another option is the Capital One MONEY Teen Checking account, which is aimed at kids 8 and older and has no monthly fee or minimum balance requirement. If you don’t have your own account at Capital One, you can link your checking account from another bank to the MONEY account. As with the Chase debit card, you can schedule recurring deposits into your child’s account and use parental controls to track your kid’s spending.

Some financial-technology companies offer mobile apps, such as Greenlight (greenlight.com), BusyKid (busykid.com) and Acorns Early (acorns.com/early), that are connected to a debit card and focus on money management for kids.

Like the options above from large banks, these services let you keep an eye on your kids’ transactions, and they may come with extra features, too, such as tools to help distribute allowances among multiple children. But you’ll pay a fee for the convenience. Greenlight charges fees starting at $6 a month, BusyKid is $4 monthly, and Acorns Early charges $5 a month per child, or $10 a month for families with up to four children.

Let it evolve

As your children grow up, you can use their allowance as an opportunity to discuss more complex financial concepts. For example, if you increase the amount they receive each year, you can explain how inflation works, demonstrating to your teenager that a dollar they receive now won’t stretch as far as it did when they were in kindergarten.

Once your child is old enough to get a part-time job after school or on the weekends, it may be time to reassess how much they will receive for an allowance — or whether they should still get an allowance at all. If your teen has a regular babysitting gig or serves food a few times a week at a restaurant, you may choose to let their income from work replace the allowance.

Other families may prefer to keep paying an allowance until their kids are on their own. The Sterns believe that their children should focus on their education rather than take on part-time work, and they plan to give their sons an allowance until they enter college.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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