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To Give or Not to Give Your Kid an Allowance

There comes a time in every parent’s life when you have to decide whether to give your kid an allowance. Here’s some help.

It’s a question most parents face at some point: should I give my child an allowance?

Experts don’t agree on the right answer, largely because all families are different, from how they manage budgets to the goals they have for their children’s financial health. But there are some basic things that parents can do to help a child develop good financial habits, whether or not they are given an allowance.

“Deciding whether to give an allowance and being clear about how you expect your child to handle money is critically important, especially when they are young,” says Sandy Zimmerman, head of retail banking for PNC in central Ohio. “It requires some thought, but by considering the pros, cons and goals, you can craft a plan that works for your family.”

Zimmerman emphasizes that whether to give an allowance is a family decision, and no one answer is right or wrong for everyone. Whether you decide to give your kid an allowance or not is a personal choice; what’s most important is that you start talking with your children at a young age about how to handle money.

Pros of Giving Your Kid an Allowance

If you do choose to give an allowance, parents need to sort through several issues before deciding how to handle it, she says. For example, will the child be expected to save a portion? Donate to charity? Will the allowance be tied to chores or given without expectation?

After you’ve agreed on answers to those questions, some pros:

  • Allowances can teach kids how to handle money, including learning the consequences of overspending.

  • If an allowance is tied to weekly chores, children may connect the relationship between work and pay, especially if they can earn extra dollars for doing more chores.

  • When children set aside a portion of their allowance for charity, they may learn how to use money to help others.

  • Children who save something each “pay day” are establishing a habit of paying themselves first and learning to save.

Little girl counting change from a jar

Cons of Giving Your Kid an Allowance

Among the cons of giving your child an allowance:

  • If an allowance is tied to chores, children may think they can decide not to do chores because they don’t need the money or they receive money in other ways – for example, from grandparents.

  • Children may learn that chores are transactional and not part of how they are expected to contribute to a household.

  • Children can become frustrated by running out of money or having to save money instead of spending it.

  • Children may assume their parents will give them money indefinitely.

How to Talk to a Child about Money

The bottom line is that each family’s financial goals and responsibilities are different. What is important is that you talk with your child about money even if you don’t give them an allowance, and the earlier the better, Zimmerman says.

Demonstrating how to handle money is important, too. Take children to the bank, or have them sit with you as you pay bills. Talk about the household budget. Use the envelope system – separate envelopes for spending, saving and donating – that will help them visualize where the money goes.

“Children learn first and foremost from parents about how to handle money,” says Zimmerman. “What you tell your child about money has great influence. And what they see you do with money has even greater impact.”

If you’ve decided to give your child an allowance, how do you set the amount? Some experts say $1 for every year of life. So, $3 a week for a 3-year-old. Zimmerman cautions, though, that the amount varies widely and depends on the household budget and the parents’ comfort.

No matter the decision, there is one thing you can do to get your child off on good financial footing. Zimmerman says that while it’s ideal to start talking with children about money when they are young, it’s never too late – even when they are teenagers.

 

As your children grow up, PNC has more ways to help them learn good financial habits »

Sandy Zimmerman
Sandy Zimmerman is head of retail banking in central Ohio.

Sandy Zimmerman encourages parents to model smart money habits. “It can be impactful to a young mind.”


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