How Much Allowance Should I Pay My Child?
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Giving your kids an allowance has been a time-honored tradition for generations. Of course, they can’t wait to get it so they can buy that new toy, some candy, or another treat they’ve had their eye on for a while. In the fun and excitement, it’s not uncommon for them to spend all their allowance within days of receiving it. But paying kids an allowance when they are young is a prime opportunity to teach them how to be responsible with money for a lifetime. Sure, let them buy the ice cream they want, but help them learn how to save money and budget.
In this article
What is an allowance?
An allowance is a way to teach kids about the value of money: Instead of asking for things they want and getting them without having to earn them, an allowance prepares our kids for an adult future when we work hard to earn money for the things we want and need. It provides children with spending money so they don’t always have to ask (and gives them the chance to learn how quickly money can be spent and the value of the things they buy.) It’s a time to encourage savings, be it in a piggy bank or traditional savings account in a bank.
There’s a lot of debate on when to start paying your kids an allowance and how much money you should pay. But it’s simple. You pay your child’s allowance if and when you want to and when you think your kids are ready to learn about financial responsibility. That is what an allowance is: A chance to foster financial literacy by providing weekly or monthly allowance payments as earnings for doing household chores and helping around the house. Some families give an allowance in return for good grades, not as a reward for an A but for acknowledging the time and hard work a child took to earn that coveted grade.
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How much allowance should you pay?
According to the American Institute of Certified Public Accountants, roughly two-thirds of parents surveyed in 2021 gave their children an allowance. On average, they paid $30 per week to a child ($120 per month).
There’s no set amount for how much allowance you should pay, but a common rule of thumb is to pay $1 per age per week. This means a 5-year-old would earn $5 per week while a 10-year-old would earn $10 per week. Others follow the 50-cent philosophy, so the children would instead earn $2.50 and $5 per week, respectively.
As your child gets older, you may want to go beyond and increase $2 for every year of their age, especially if they are driving and helping with such car expenses as gas and insurance. A 14-year-old, for example, would earn $28 per week, which is enough money to cover a run to the ice cream shop with friends and then some.
Typically, when a child is in high school, they can get an afterschool job and no longer require an allowance. Some states, however, will not allow children to work until they reach age 15 or 16, so you may want to continue providing an allowance until your child comes of age.
Other children are too busy to take on part-time jobs, play sports, participate in extracurricular activities, or volunteer. Some suggest these activities are their work and education, and providing a weekly allowance to allow them to earn spending money is helpful.
No matter the age, it’s important to choose a definite payment schedule to know how much money they will receive and when for budgeting purposes (see below).
How to help kids use an allowance
Paying kids an allowance is the first step to teaching them how money works, how to spend it responsibly, and how to save money for future needs and wants. Here are some steps to take to help them learn financial responsibility.
Set savings goals
One of the key components of fiscal responsibility is learning how to save money for the future. Whether it’s saving up to buy a new video game, a new car, or paying for college, children need to learn how to start saving early. For tweens, you can start simple: Have your kids put 10% of their allowance into savings every time they get paid. So if they receive $10, they save $1. Starting this practice early is crucial to making this a lifelong habit.
To help them see the value of those savings, have them set savings goals such as $50 for a new video game. Once they save this extra money, you can take the money out of their savings so they can buy the game. Hopefully, this will instill a sense of pride and accomplishment as they see the rewards of putting away cash for the future instead of spending it all now.
Open a savings account
Once you start paying kids an allowance, it’s time to set up a savings account, so they have a place to put their savings. You can opt for a traditional savings bank account, and many banks do offer savings accounts for minors. But those accounts have very poor interest rates. You may want to search for a savings account with an online bank that pays a higher interest rate. These accounts may have an age requirement, so you may need to set up the account in your name and transfer the funds to your children once they reach the minimum age requirement.
This is also a good opportunity to teach them how compound interest works to grow their money over the long term.
Help them budget
As kids get older, teach them how to budget their money, know how much they have to spend and how much they need to save, and see where their money is going. Learning their spending habits now can help them see where they may need to make changes in the future to pay their living expenses while still adding to their savings. It all comes down to money management.
Although younger kids may not have actual expenses for budgeting, have them list the items they want to buy with their allowance. Maybe they buy an ice cream each week. Perhaps they get the latest fidget toy. Whatever they spend their money on, have them make a list to see if their allowance — or income — covers those expenses. Make sure they add a deposit to their savings account. This way, they can see where their money goes and decide if that’s truly how they want to spend it.
Older teens can do the same, but their expenses may reflect living expenses such as gas money, a gym membership, streaming subscriptions, or paying for a date. Once it’s in writing, they may realize they have a tight budget. Talk over ways to reduce their expenses with them without sacrificing their savings.
Provide debit and credit cards
Debit and credit cards are financial tools that are a routine part of money management in today’s world. It may sound scary to give your child a debit or credit card, but there are cards explicitly marketed for kids under 18 years old. Popular debit cards for kids include Greenlight, GoHenry, and BusyKid. Some cards incur monthly fees while others do not; likewise, some have minimum balance requirements while others do not.
With credit cards, due to age requirements, you likely will need to open a credit card in your name and add your child as an authorized user on the account. If you choose to do this, look for a cash back card. Initially, you may want to set a maximum limit your child can charge on the card, mainly to avoid paying interest or late fees.
Only you can decide if your child is ready to use a debit or credit card. You can always try one, and if it doesn’t go as planned, you can take back the card until you feel they are ready to use it again.
Open a checking account with your teen
When your child is older, it’s a good time to open a checking account with him. Many banks offer student checking accounts, so your child can start learning how to use this account to pay their expenses. Although not used as much these days, it’s still important for kids to learn how to write a check, balance a checkbook, and use an ATM card. Checking accounts also usually come with a debit card, so if your child had one of the debit cards mentioned above, she can close that card and stop paying the fee. (She could keep paying that fee but put it in her savings instead of paying the debit card company.)
Review their credit score
All consumers, even teens, will have a credit score once they open a checking or savings account or use a debit or credit card. Therefore, it’s important they understand how their credit history is reported and its impact on their credit score. They will need a good credit score to apply for an apartment lease, but they also may need a good credit score when applying for a job or purchasing car insurance from insurance companies.
Explain how late or missed payments will result in expensive late fees and higher interest rates and will damage their credit score. Tell them how paying off their credit card will keep their debt-to-income (DTI) ratio down, which will improve their credit score. Review their credit report and show them how to read them.
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- Up to 2-day-early-paycheck
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- Do it all in one app.
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More ways to help your child learn about money
As your kids get older, it’s important to teach them how to respond to certain personal finance events, so they are prepared. For instance, when they go to college, they may have to start grocery shopping. Have them put together a grocery list and price those products using grocery store apps. Once they know how much their groceries will cost, show them money-saving tips, such as signing up for the grocery store loyalty card discounts and using coupons.
Older teens will likely be revising their financial goals to prepare for living independently. This could include building an emergency fund for unexpected expenses such as paying to replace a flat tire. They also may want to start saving to pay off student loans. Whatever their plans and goals, give them the confidence to discuss them with you and ask for advice on achieving those goals.
Encourage them to earn extra cash
If your kids want to save more money for a big purchase or have money to go to the movies with friends, help them make this happen. For instance, younger kids can take on extra jobs around the house, such as mowing the lawn or cleaning out the garage. Older teens can get a job or take on a side hustle such as mowing grass for the neighbors or babysitting. They can work for the short term until they reach their immediate goal or keep working to build up their savings.
Every payday, check-in with them to see how they are doing following their budget and meeting their savings goals. Staying involved is a great way to keep them on the right financial track, so they are not living paycheck to paycheck.
Teach them about giving
A big part of having money is giving back to others who may need some help. Talk with them about how they would like to give back. Maybe it’s buying groceries for the local food pantry. Maybe it’s donating blankets to the animal shelter. Or perhaps they want to donate toiletries to a homeless shelter. Whatever the cause, encourage your kids to make giving a part of their financial planning and budget. This is another financial habit that could have lifelong impacts beyond helping those in need.
To keep them interested, have your kids pick their chosen charity or cause and plan out what type of help they will provide and how they will pay for it. It could be a one-off project, or they may plan something for a few months or even a year. Encourage them as they participate in their giving campaign, and help them choose a new giving campaign once they achieve their goals with the first one.
The bottom line
Deciding how much allowance you pay your kids is the start of their financial journey. Take advantage of this opportunity to start teaching them about managing their money, from setting and following a budget to using credit cards to saving for an emergency. Learning hacks on making the most of their finances when they are young are lessons they can use throughout their lives.
Better banking is here.
- No account fees
- Earn up to 4.20% APY
- Up to 2-day-early-paycheck
- No-fee Overdraft Coverage.
- Do it all in one app.
- Up to $2M of additional FDIC insurance through a network of participating banks.
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Writer
Karon Warren is a freelance writer who has covered articles in finance, insurance and health for sites like Reviews.com, USA Today, Healthgrades, among others.
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