Kids, Chores and an Allowance

Figuring Out the Smart Way to Teach Money Management Basics

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Teaching Kids Money Management BasicsThere seems to be an ongoing debate over whether or not a child should be paid to do chores. Most people feel a child should be expected to help out around the house because they are part of the family, not because they get paid to do it. You don’t want to create little mercenaries who balk at helping unless they are paid to do it. But an allowance that is just handed out becomes just that – a handout – and doesn’t help a child learn the connection between work and pay. 

Is there a balance?

One suggestion is to establish a basic allowance that isn’t tied to household chores but does come with some rules attached. For example, out of the basic allowance the child should be required to take over some financial responsibilities, such as paying for toys or snacks at school.

Out of this basic allowance, there should also be a portion put aside for savings (say around 25%) and for charitable giving (around 10%).

Then you can identify chores or tasks that the child can do for extra money.  For a young child, this might include putting away toys at the end of the day. For an older child, there may be more opportunities, such as helping with dishes or raking leaves.

Then there is the question of how much of an allowance is reasonable.

Some experts recommend $1 per week for each year of age, so a five-year-old child would get $5 per week, a 10-year-old would get $10 per week.

Others recommend starting with a base equal to half the child’s age and then increasing it as necessary depending on where you live (yes, there is a cost of living factor even for an allowance), and what you expect the child to pay for. In some cases, $4 a week for an eight-year-old might be plenty but a 14-year-old might need more than $7 a week depending on the expenses he or she is expected to pay for.

Another recommendation is simply to work out what you expect them to pay for out of their allowance and figure the right amount from there.

However, it is important to stick to your rules. If the child is given $7 a week and is expected to pay for snacks at school, then if the child doesn’t budget but spends it all in the first few days, do not give the child more money. That’s not the lesson. The child will learn faster and smarter by having to go without snacks for the rest of the week until the next “payday.”

One thing most experts do agree on is to start kids off as early as possible on learning about money and how to handle it. Once a child starts walking and talking, that child is old enough to begin handling some basic money concepts that can then be built upon as the child grows.

  • Children five and under can start to earn money for special tasks (an allowance), learn to budget by dividing up their money for spending, saving and charity, and figure out the difference between low-cost and high-cost items.
  • Children between six and around 10 years old can begin to learn the difference between wants and needs, identify and count cash, and begin to recognize when the price is not about quality but about branding – in other words, an upsell.
  • By the time they are eleven years old and into their teens, children can expand their income by finding additional ways to earn money, think twice about giving in to those impulse buys when it’s their money they’re spending, and learn to track and balance a checkbook.

These are just some ideas that different experts have offered on when and what to teach your child about money management. The real lesson is that you are building a foundation for your child’s future; a lesson that will carry them through all the stages of their lives. And that is a legacy you can be proud of.

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2 Responses

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