How to Adjust Your Kids’ Allowance as They Age

If you’re a parent, one of your biggest head scratchers when it comes to personal finance might revolve around whether you should give your child a regular allowance. Hopefully, you’re thinking about a plan to teach your child or children about money, and if so, a weekly or monthly allowance might end up a part of the discussion.

“Most parents agree that children need some money to manage so they can learn how to make better financial decisions,” says Tom Drake, a financial analyst from Alberta Canada and blogger for AllBuisness.com. “It’s the approach that becomes contentious. Do you just provide the money, or should you make them work for it by tying allowance to chores?”

Drake, who has two young children, also points out that allowance policies need to change as kids grow and mature. “What you expect from a five-year-old is different [from] what you require from a teenager.”

When are children ready for an allowance?

According to PBS.org, most children are ready to start learning about money when they are at preschool age, or around 3 or 4 years old. At that age, there’s no need to provide a large weekly allowance. To start, a general rule of thumb is $1 per year of age. This provides your children with a way to begin learning how to budget their money and gets them in the habit of seeing that money can have different purposes.

No matter how much you decide to give children for an allowance, it’s important that they learn to save for the future, that they figure out their own spending priorities, and that they begin to think about donating money to causes they care about.

After you have determined the amount you will give your children, it’s important to decide how you will give it to them. Some parents tie allowance to chores, only providing the money after their kids have completed a list of agreed-upon tasks. “Other parents want their children to learn that you can’t get paid for everything you do and that some jobs are required as part of a family,” says Drake. “You have to decide what lessons you want to teach your children.”

In our household, my 12-year-old son receives a modest allowance as a way to learn about money, and he’s expected to do his chores without specific compensation. However, he also has opportunities to earn extra money by helping with administrative tasks in my home office and by participating in 4-H to earn money. As he gets older, he is prepared to see a smaller allowance as he begins to work outside the home.

Changing allowance amounts for older children

As your children age, they may need a bigger allowance, regardless of whether you increase what you pay for chores or just add to the total amount given. HealthChildren.org suggests basing an allowance on what you expect your children to start paying for themselves. So if you expect your children to donate to charity, save for the future, and cover their own entertainment costs, it’s important for you to provide an allowance that allows them to achieve some of these financial goals.

For example, my son knows that I will pay fees for extracurricular activities, but he is responsible for paying for his own food when he goes on trips with these activities. He is also responsible for paying for his own gadgets and toys, as well as his music, video games, and movies. My son’s allowance is large enough that he can give 10 percent to charity, save 20 percent for the future, and use the remainder to save for pricier toys in about three months. Given his age, his allowance is about three times what it was when he was 7.

When your child is old enough to get a job, you may want to consider reducing the amount of allowance you pay. Like many parents, I expect my son to find a part-time job when he turns 16, and his allowance will disappear at that time. While I will still pay for extracurricular activities and the necessities of life, he will be responsible for his wants.

Establishing expectations early on is an important part of the allowance process. Let your children know their responsibilities, as well as what you will cover. You can also make it clear that they are expected to develop habits of long-term saving and charitable giving while learning to make responsible spending choices.