How I set up my Children’s Allowance

Why have an allowance?

As you will see on this site, I am not a big fan of spoon-feeding my kids everything they want. I also love my children very much and would love to give them everything they want, but I know that isn’t the best for them. So I was conflicted on how to provide for them yet not completely spoil them. Read on to learn how I set up my children’s allowance.

I also want to teach then to handle money at a young age. We all see the news clippings about lottery winners and NBA players who come into quick, easy money and end up squandering it all away. In some ways, our children could fit into the same category since they didn’t really do anything to earn the right to be born into a high-income family. I’m sure we all have shaken our heads in disgust when our children complain or worse yet throw a temper tantrum because they don’t get dessert when they go to a restaurant and are served wonderful food and drink as their parents pay for it.

So how do we teach our children about handling money, give them the opportunity to buy some luxuries/wants, but also curb their unending thirst for all things shiny and sweet?

The allowance!

I know, it’s not an original idea but the way in which it is set up is the key. The devil is in the details.

How Much do you Give?

So how much do you give? That is a tough question. I wanted it to be meaningful but not excessive. Also, I don’t want to go broke from doing this. I want them to be able to see the overall allowance grow quickly enough so that they notice the difference, but not so much that I can’t meet my retirement goals. The decision was made to give them a dollar per year of age per week. So the 6-year-old gets $6 a week and the 15-year-old gets $15 a week. We started this when each child turned five years old. To some that may be too much, other too little, but that is our decision.

 

How does it work?

Their Mom and I sat down the children and told them why they were getting the allowance and what our expectations were for them to continue to receive this generous gift. I stressed that this was an educational opportunity (Can you hear the children groaning?). We told them they need to learn to manage money and we wanted them to buy some things that they want. Mom and I will continue to provide the things we think they need, you know like clothing, food, school supplies, and books, etc. If they want something that we deem is not a necessity they have the opportunity to save up their allowance and buy the item or experience on their own. Of course, Mom and I still have to approve the purchase. We also talked about waiting on the decision to buy something so that they don’t impulse buy. We usually have them wait at least 24 hours and talk to them about the pros and cons of each purchase.

What are the requirements?

In order to keep getting this allowance they have to meet these parameters:

  1. The have to ask for the allowance between Friday and Sunday each week. If they forget, they forfeit that
    Allowance

    Thank you!

    week’s allowance. We did this so that they learn to not be afraid to ask for what they want. They have to be polite and grateful but also assertive in their asking. We hope this helps later on when they negotiate salaries or ask for raises in their future employment.

  1. They have to do their common family responsibilities. You can define these that best fit your family. In ours, they have to keep their rooms and bathrooms clean. They aren’t perfect of course, but if I walk into their rooms and see them filthy, I ask them to clean. If there is any verbal reluctance (aka whining) they know the allowance can be withheld that week. The also traditionally clean the kitchen after every meal, pick up their toys and have to clean up any other mess they make. There are special opportunities to earn cash like cleaning out the garden or helping with the spring yard work like mulching, etc.

How do we divide it?

We teach them the three main areas you can put money.

  • Give
  • Save
  • Spend

The percentages of each category can be whatever you want, but we decided at least 20% for giving, at least 40% for saving and the rest (40%) for spending. We want to encourage a high savings rate.

We started out giving them cash in an envelope system but that became too tedious. With five children we were at the bank withdrawing dollar bills and breaking them into coins way too often. It was difficult to keep up and be consistent.

Using Technology to Help

Allowance

Technology, so Helpful!

We have a local credit union that makes it easy to open several savings accounts online to track them on their app. We decided to open two accounts per child, a spendi, g and a saving account. They are all savings accounts according to the bank though. I know the bank limits six transactions a month with savings accounts but we haven’t run into any problems so far. We end up either giving the kids cash or putting their purchases on our credit card so that we earn points (another lesson for another time). They then transfer the money from their accounts into the Mom and Dad main account that all the money was transferred from in the first place. It is a pretty cool app and even makes a “cha-ching” sound when money is transferred between accounts. The kids really like that. If you could find something similar I think that would work well. Also, if you have fewer children than I do it probably won’t be as crazy to keep track of the accounting.

The kids take the money from the spend account and give it to the charity they want monthly. We have our own parameters for that as well but again, you can do what is best for your family.

How long does this go on?

We have committed to this system until the children go to college. We haven’t quite worked out how funds will be distributed in college if any yet. Thankfully we still have three years before this becomes a reality with our oldest, but their mother and I have some ideas. Maybe that will be in a future post.

Summary

We give our kids an allowance. We divide it 20% give, 40% save, and 40% spend. They have to meet specific requirements to receive the allowance. The most important part is that we are intentional. We lay out all the reasons for the allowance in the first place and remind them frequently. I hope this gives you some ideas. How do you do your family’s allowance? Do you even have a system? Feel free to share your family’s ideas for allowances and let me know what you think.

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Tom
Tom is a doctor, husband and father of five with a passion for parenting and finance. When he isn't skateboarding, riding BMX, or jumping on the trampoline with his kids, he is reading and writing about personal finance. He helps high income parents educate and mentor their kids to become financially, emotionally, and intellectually self sufficient.

6 Responses to “How I set up my Children’s Allowance

  • My oldest will be 4 next month and I think she’s ready for something like this.

    My wife and I have been brainstorming and I think we will implement something very similar.

    I like having them remember to ask for the allowance. And we will likely use cash only for the first few years. Being able to touch the money should help drive home the lessons.

    • When we started our youngest on the plan, she appreciated getting handed the actual bills.
      Now I feel like the older ones prefer getting to look up their accounts on the banking app over handling cash and it’s definitely a lot easier for me. Hope it helps.

      Tom @ HIP

  • We struggle with this. We know our kids don’t do as many chores as they could be doing, but do we pay them per chore, or an allowance? Since I grew up on a “per diem” situation, I can attest this pay for service model (just like in medicine) works, but is also irrregular.

    I have a very good article about brokerage hacking. I suggest that you click on the link for the Capital One kid’s custodial account. For a very small contribution, they get $50 for free and become investors at a very young age (mine are 6 and almost 8). It’s so fun to watch the little ones get excited about earning free money just for opening up a new account. Don’t underestimate the capacity of your children to learn about money, is my advice.

    Great topic.

    • Thanks FP,

      Our kids love opening their bank statements and watching the interest grow too. I will check out the capital one accounts.

      Thanks

      Tom @ HIP

  • CollegeFinanceFreak
    4 months ago

    Tom,
    My favorite part of your allowance plan is to make your children ask for it each week. I know many adults who have trouble being assertive, which I believe hurts them later in life. As a child, I did not receive an allowance, but this post has encouraged me to consider one for my future children.

    • Glad to help. I really think it helps our kids be more assertive.

      Tom @ HIP

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