Money Matters: How To Make Allowances

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By Marie Hartwell-Walker, Ed.D.

Functioning in today’s world requires the ability to manage money. From my point of view, it’s a
disservice to let kids grow up thinking that money will magically show up whenever they want
something. It’s not helpful to inadvertently teach them that they can obtain money by whining,
cajoling, or throwing a fit. It’s a way to sabotage our own teaching when we bail our kids out
whenever they overspend. Competence in money management comes from experience, not from
being on the dole. Preparing kids to eventually be on their own means systematically tutoring
them in money matters.

Parents have found ways to successfully teach their kids how to deal with money for generations.
I don’t claim to have a corner on the “right” way to do it. I can only share what many parents in
my parent study groups have found to be helpful as a modification of the age-old allowance.

The fundamental principle is that kids can’t learn to handle financial responsibilities unless they
have some money of their own to manage. Done well, a weekly allowance covers as many
weekly needs as possible so that the child doesn’t constantly have to ask her parents for money.
The point is not to give your children more money than you normally would but rather to
gradually shift as much responsibility for money management to them as possible to prepare
them to handle money well.

Tips for Making an Allowance Work

 Be a good role model. If you don’t already, make banking and paying bills visible. When
kids see their folks making a special time once a week to deal with the budget and to
write out checks or go online to pay bills, they understand that this is part of what being
an adult is all about.
 Sit down with the kids and ask them to list their fixed weekly expenses. This might
include lunch money, club dues, a church offering, and money for a weekly movie rental,
for example – whatever you usually dole out over the course of a week. Then add the
amount you usually end up throwing in for treats or outings each week. For older kids
and teens, add in what you would normally spend for their special toiletries. If you
generally give your kids money to help them buy presents for family members on
birthdays and holidays, add that in too. The total is the weekly allowance. It may surprise
you just how much it is.
 Help the children draw up a “budget.” Stress that they are expected to pay their “bills”
just like you do. If they want to be sure to have enough money for an unexpected event or
item or to buy someone a present, they need to be sure to save some percentage of what
they get.
  Decide on the frequency of the kids’ “paychecks.” There’s nothing sacred about a
weekly allowance. Some kids can handle getting a whole week’s money all at once.
Some will burn right through it by Wednesday. When that’s the case, start out with
maybe some money coming in on Monday and some on Friday (so they are sure to have
money for the weekend). As they get better at budgeting, expand the time between
payments. Older teens often eventually benefit from having a monthly allowance to
manage so they get practice in thinking longer-term.
 Be absolutely clear that there will be no extra money coming from you between
allowances – and mean it. If you open your wallet as soon as the kids run short, you are
teaching them that there are no consequences for bad planning. Warning: This can be
painful. It’s hard to watch a child have to stay home when all his friends are going to a
movie and he’s already spent all his money. But, trust me, over the long- , it’s more
painful for a child to grow up clueless about money.
 Don’t argue if a child asks for money in between allowances. Simply say something
like, “I’m sorry you ran out. Your payday is on Friday and there’s nothing I can do.” End
of story. There’s no need to be angry or to give your best lecture on responsibility. Not
having money is a much more powerful consequence than anything we can say. On the
flip side, don’t be persuaded to give an advance. It’s important that kids not learn to live
on “credit.”
 Especially in the beginning, have a weekly review of how it’s going. It’s important to
remember that this is an educational situation, not a trial. Criticizing and scolding will
make the meeting so painful that neither you nor the kids will want to keep up the
lessons. Instead, look at what went right and where your child or teen needs extra help. If
you find that there is a legitimate gap between the allowance and expenses increase the
allowance. Often kids get more conservative when they are spending their own funds.
Don’t dock them if they‘re not spending it all. Praise them for becoming good savers.
You can certainly provide financial gifts now and then (birthdays, when the kids bring
home a stellar report card, the tooth fairy, etc.) but these should be genuine gifts and not
included in the allowance routine.
 As kids get older, more and more responsibility can be turned over to them. Some
parents, for example, give their teens the entire amount that would normally be spent on
back-to-school clothes in the fall. They then have a conversation about the difference
between needs and wants and together make a list of where the money should probably
go. Then it’s up to the teen. If she or he decides to buy one pair of designer jeans instead
of two pair of a no-name brand for the same price, so be it. There’s a lesson to be learned
when that designer pair is dirty and there’s not another clean pair in the drawer.
 It’s not helpful to withhold an allowance as a punishment. When the allowance is a
teaching tool, taking it away deprives the kids of important lessons. Most of us don’t lose
a paycheck for forgetting to take out the trash or coming in 15 minutes late or losing our
temper now and then. Neither should the kids. It’s more helpful to find another
consequence for misdemeanors.

When Family Money Is Tight

If money is difficult to budget in your family because income is unpredictable or very tight, it
may not be possible to give the kids a regular allowance. But you can still help them learn to
handle money. You can make the grocery shopping a teaching moment, for example, by having
the kids work with you to figure out how to buy what the family needs with the cash you’ve got.
Kids can’t appreciate how much the phone or the electricity costs unless they see those expenses.
Older kids can sit in on paying all or some of the bills. They are less likely to complain if they
understand the reality of their family’s finances. A teen who gets a part-time job can be taught
how to budget and save so a paycheck doesn’t just burn a hole in his pocket. Do try to give a
little money now and then to kids who are too young to be in the workforce so that they can have
the experience of deciding how to handle it.

It’s the Skills that Count

Imagine my surprise when one of my students last semester told me she was able to buy food for
herself for $100 a month while another complained that his parents gave him only $100 a week!
The young woman’s parents had done a fabulous job teaching her how to juggle funds and
manage on what she had. The other student rather sheepishly confessed to me that before college
he’d never even thought about how much groceries cost. There’s a lesson in this: How much
money is enough seems to be a state of mind. But knowing how to manage what you’ve got is a
state of skills.

Allowance for Kids: How You Pay Can Teach

How to Pay

Parents commonly pay their children’s allowance one of three ways: paid as requested or needed,
paid regularly as set periodic payments, or a combination of the two. Giving money to kids on
request for a day at the mall or to have some spending money on hand can add up. The problem
with this is that it’s difficult to keep track of and neither the parent nor the child has an idea of
the amount of money that has changed hands over the course of a year. This also fosters money
habits that in the future can lead to impulse spending problems.

Paying a set amount every week sets the stage for real world money management habits. The
child might more quickly learn that their spending has limits (this may sound familiar) and that
budgeting is important because there is no more money until the next “pay day.”
Also it’s important to pay on time at a set schedule and to never miss a payment. One of the
lessons that an allowance is supposed to teach is discipline, and that your children will expect to
receive their allowance on their “pay day.”

Living on Net Pay

One of the lessons an allowance can teach that is particularly valuable for the real-world is to
live beneath your means. For example, if you pay an allowance of $10 per week to your child,
then work out an arrangement where they will set aside $2 for saving and $1 for giving, and they
can use the remaining $7 for spending. This helps to teach the lesson of “gross pay” and “net
pay” and saving for future expenses like a car or college. Don’t expect these concepts to sink in
right away, but if you stick to this approach, you will lay the foundation for the day when they
later receive income from work outside the home.

Allowance Accounts

If all of this sounds too tedious — after all, who has the time to go to the bank each week, get
cash and break out an allowance into small amounts for spending, saving, and giving - then
consider this solution:

Take your children to your bank and sit down with one of the bank’s customer service officers.
Explain that you want to open two accounts for each child — one for spending and one for
saving/giving. Have your children bring some of their cash savings with them to use for the
initial deposit into their accounts.

Have these accounts linked to your own account so you can then access and view them on one
screen when you log into your bank’s web site. And request an ATM card for each of your
children’s accounts.

When you get home, log onto the banking website with your children. Check the accounts and
view the initial deposits made. On most sites, you can also assign nicknames to the accounts for
each child. Then set up the automatic transfers for the allowance payments to each of the
accounts.

I personally use this arrangement and it works really well for our family. We never miss an
allowance payment. Our kids, with our supervision, can log onto their accounts and see how
much money they have to spend, to give, and how much they have saved. When they need cash,
we go to an ATM and they use their card to access their account and make a withdrawal. This
arrangement teaches them at an early age how to deal with money electronically and online.
After all, that will be the way they deal with money and banking in their lives.

When to Stop

Parents often end allowances when their teen gets their first job. Many teens see getting “cut off”
as a downside to getting a job, especially if their allowance paid for daily household chores they
are expected to continue doing. Alternatively, spending-based allowances are viewed as a
transition to independence that comes when getting a regular paying job, something that helps
establish realistic financial expectations.

Also, encourage saving and investing by setting up an investment account and offering to make
matching contributions for each dollar contributed up to an annual limit. What you teach your
children about managing their money will make a difference in their financial behavior for the
rest of their lives.