Many children would rank their weekly allowance as one of the events they most look forward to every week, but how much should that allowance be?
This can be a deceptively simple question in many cases. Some parents simply pay their kids what they can afford to part with, while others tie an allowance to chores or other tasks and objectives. What should kids really be getting, and learning, from their weekly handout?
The right answer can depend on several factors, such as the type and amount of expenses that you expect your child to pay for him or herself. Here are some of the common methods for calculating an allowance.
The Age Method
This is perhaps the simplest method for calculating an allowance. The child simply receives a dollar allowance equal to his or her age. For example, an eight year old would receive $8 per week, and a 10 year old would get $10 per week.
Payment for Chores
A fair amount of controversy exists over whether or not to pay kids to perform household tasks, such as cleaning their rooms and mowing the lawn. Opponents of this idea argue that kids need to learn to do these things without having to be paid for it, while proponents counter that kids also need to learn about being rewarded for their work.
One happy medium that has often been used is to provide a base allowance that is not tied to routine chores but will pay extra for special tasks, such as taking out the garbage. If your kids don't do their assigned chores, then some other form of punishment other than withholding allowance should probably be used. Your kids obviously shouldn't be able to get away with not doing their chores if they don't value their allowances enough to do them.
However, it would likewise be unfair to expect your teenager to undertake a project such as repainting the exterior of the house for nothing more than his or her usual allowance. In many cases, a child's personality can play a role in how this works. If your child is a hard worker by nature, then payment for projects completed is more likely to be a positive reinforcement. If your child is lazy, then monetary reward may not serve as a healthy motivator.
You should also take into account those expenses for your kids that you pay for, such as lunch money, clothes, entertainment and other periodic expenses. If you expect them to pay for these things themselves, then their allowances should be proportionately higher. However, be sure to clearly list out all of the things that you expect them to cover themselves, in order to avoid confusion. Economic factors, such as your family income, the cost of living in your area and inflation, should be considered as well.
The Bottom Line
Of course, the real purpose of an allowance should be to teach your child how to manage money effectively. An old axiom states, "A child's allowance should be enough to allow [them] to buy something small right now or save for something big later on."
If you pay your kids enough to allow them to do and buy whatever they want, then they will not learn vital lessons about how to wisely allocate limited resources.
If your children make mistakes with money now, the consequences will be relatively small. However, they can learn big lessons from these mistakes that can carry into adulthood like lessons about spending versus saving, shopping wisely, negotiating for items and other useful financial skills that can serve them for the rest of their lives.