The great allowance debate.
To pay, or not to pay, that is the question. According to a 2012 American Institute of CPA (AICPA) survey, 61% of parents pay an allowance of some sort to their kids. When I was growing up I did not receive a regular allowance, but I did receive money from my father for good grades starting in Middle School ($5 an A). Let’s just say that little George’s pockets weren’t overflowing with cash from the good grades allocation method! The Tooth Fairy paid a few visits to my household when I was very young as well. We had a special little pillow with a little pocket sewn into it for a tooth. I forget the going rate back then, but according to Visa’s annual Tooth Fairy Survey, $3.70 per tooth was the average rate in 2013 (yes, that survey does exist). There are three main camps of theory when it comes to paying a regular allowance to children: for, against, and a blended approach.
For paying a regular allowance
- Parents that pay their children a regular allowance say that it teaches their children to become comfortable with money at an early age. Additionally, children start earning their own money so that they can take ownership for their own spending decisions. It also introduces financial incentives for behaviors so that they can understand the concept of earning a wage for work performed (i.e. prepare for a life as an adult). Generally, the children are paid an allowance for doing their agreed-upon household chores for a stated time period (usually a week).
Against paying a regular allowance
- Opponents say that paying a regular allowance for chores sends the wrong message to children and you could risk them becoming dependent upon financial incentives for behaviors that should take place anyway. The real rub here is with regard to the child’s inherent obligations and contributions to the familial unit. Do recurring financial incentives set us up for failure when we ask for additional contributions from our children?
The blended approach
- The blended approach incorporates both theories to a certain extent. Most folks who practice this method pay either a recurring or per occurrence allowance for behaviors above and beyond the child’s required familial contributions/obligations. Therefore, a child may receive the allowance for that time period if they do something more than what their regular chores require. The logic here is that household chores are required as being part of the family, and financial incentives are only for behaviors in addition to those inherent obligations.
My personal favorite is a variation on the blended approach that uses a balanced scorecard (think key performance indicators at your job). I’ve seen this method administered and it works very well. It relies on a foundation of transparency and accountability, and centers on a weekly chart that is displayed in a public place (the refrigerator). The child has regular household chores that are required as a member of the family. That alone doesn’t earn the allowance, but it determines the child’s eligibility to receive an allowance as long as other behaviors are performed on the scorecard. The allowance is paid for that week if the chores are done, good grades were given at school, good behavior was demonstrated at school, good behavior was demonstrated at home, books were read at night, bedtime was respected, television privileges weren’t violated, musical instrument was practiced, etc. The parent and child agree on the scorecard components and everyone knows what has to be done in order for the weekly allowance payout to be administered. Of course, the scorecard will have to change as the child grows older in order for it to remain relevant.
Here are my suggestions as you begin to formulate an allowance strategy in your household.
- There are a number of different schemes for how to administer the allowance if you decide to pay one. My advice is the KISS (keep it simple, stupid) method. If it’s too complicated and complex, you won’t stick with it and your child will lose interest.
- In addition to keeping it simple, remember to change it up on a regular basis in order to keep it fresh. Keeping the same scheme could cause your child to lose interest over time.
- Most parents start paying a recurring allowance between the ages of 4 and 7. This all depends on the child’s readiness and understanding of money concepts. Start too early and the child doesn’t appreciate any of the lessons that you are trying to teach. Only you as the parent can make this determination.
- Consider phasing out the allowance when your child is old enough to work on a regular basis (see last month’s column on the value of meaningful work). Timing this right would mean retiring your obligation to pay an allowance when your son or daughter starts earning their own income for work outside of the home.
- The most common payment frequency for a recurring allowance is weekly (monthly is the second most popular frequency). The most common payout scheme is 50 cents for every year of the child’s age (i.e. six year-old child would receive a $3 per week allowance). However, this all depends upon your comfort level, how much ownership of spending you want your child to take on, and your personal financial situation.
- Teach your kids to save a portion of their allowance and earnings. Save, spend, and share are great values to teach at an early age. A physical piggy bank in your home tied with deposits to a high yield youth savings account is a great way to implement this strategy.
Please share your thoughts in the comment section below. Last month’s comments regarding the value of work were very insightful and inspiring. Thank you!
- What are your thoughts on paying a recurring allowance in your household?
- How much is your payout?
- When do you start and when do you stop?
- What else do your kids get paid for?
