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Tips for Creating an Allowance Plan for Your Kids

Tips for Creating an Allowance Plan for Your Kids

I am the proud mother of a 13-year-old son and 10-year-old daughter. If you are anything like me, you’ve tried (more than once) to start an allowance program for your kids only to have it fizzle out after the first few weeks. Each time I set out with the greatest of intentions, only to find myself “owing” my kids a week or two worth of allowance. I get busy with a seemingly endless list of tasks and forget to stop by the teller line on my way home from work to pick up some cash. What started out as an earnest attempt at teaching my kids financial responsibility has now made its way to the bottom of my “to-do list”. #momfail

All joking aside, teaching our children to become fiscally responsible is one of the greatest gifts we can offer our children as we prepare to launch them into the real world. It is no secret that kids who get an allowance tend to be more fiscally savvy than those who do not. They score higher in a test of pricing knowledge and are less likely to mistake credit as a limitless form of currency.

Determining how you want to handle an allowance plan for your children can seem daunting, but it doesn’t have to be. Here are some simple steps you can take to help develop an allowance program for your family.

DETERMINE WHY YOU WANT TO CREATE AN ALLOWANCE PROGRAM

Determining how much and how often you should pay allowance might seem like a natural place to begin. But I would suggest you start by asking why you want to start an allowance program. For example, do you want to teach your kids the importance of having a good work ethic? If this is the case, then you might decide to compensate your kids for helping out with household chores or yardwork. Establish a plan with the understanding that allowance is earned, and the money is only paid once the work is done. This is a great way of teaching kids about the consequences of their choices. If they chose not to do the dishes, they don’t get their allowance.  A valuable lesson, indeed.

Or your motivation might be purely to teach them to manage their money wisely. If this is the case, you might feel that household chores such as feeding the dog, making your bed, or raking the leaves are all part of being a family. These responsibilities come with the territory. Children get their allowance, no matter what. While there is no link to allowance and work, the kids do get first-hand experience with real money and how to manage it. Some might argue this approach could lead to kids growing up with a sense of entitlement; never learning the value of hard work.

FIGURE OUT HOW MUCH YOU WILL PAY

Once you’ve determined what you hope to accomplish with your allowance program, you can begin thinking about how much you’re willing to pay. If you’ve decided to pay allowance based on what’s earned, then you should begin by assigning a set dollar amount to each specific responsibility. Washing the car or mowing the lawn could be worth more than taking out the trash or helping to fold laundry.

A widely accepted rule of thumb is to pay kids a set dollar amount, typically $1 or $2, based on their age. In our case, we would give my son $13 per week and my daughter $10. In this scenario, you might consider paying additional allowance for larger household projects that are outside of the normal everyday chore list. Regardless of what you decide, make a plan and stick to it.

SET SOME GROUND RULES

Regardless of the allowance method you use, I suggest you keep the following in mind when creating your plan:

  • Be clear on how the allowance can be used. For example, allowance might be used for social outings and extra-curricular activities. This keeps kids from needing to hit up mom and dad every time they need cash to go to the movie or grab dinner with friends. Or, in my daughter’s case, to buy after school “treats” on Friday afternoons. Or, for older teens, allowance might be used for necessities such as school clothes, phone bills or toiletries while funds for entertainment and extra-curriculars must be earned by doing additional chores around the house.
  • Be consistent. Pick a day of the week or month and stick with it. In the past, this has been the most difficult part for me. I’ve set reminders on my phone and added notes to my family calendar to keep me from skipping the teller line. Cold, hard cash is best for you younger children while older teens will benefit from having a checking or savings account that is linked to a parental account. It is never too early to start teaching your kids how to manage a bank account.
  • Talk to them about money. Simply handing them an envelope of cash does not a make a wise manager of money. Help them establish good habits by creating a budget that accounts for spending, saving, and sharing. This will help them to better understand that income should not only be used for immediate wants and needs but saved for unexpected opportunities or setbacks. Help them establish goals for their savings by creating budgets that help them save toward the purchase of a new video game or pair of shoes. Helping your children to establish a habit of saving money will help them later in life to prepare for major life purchases such as a new car or home.
  • Take advantage of teachable moments. As crazy as it might sound, allowing your kids to make mistakes with their allowance can create some of the best opportunities for them to learn. Learning from their mistakes at an early age can help prevent much more costly mistakes in the future.

If you’re child is ready to start managing a bank account, we’d love to help! Stop by one of our Banking Centers and speak with a New Account Representative for more information on our checking and savings opportunities. No matter what your allowance plan looks like in the end, congrats to you, mom, and dad! Helping your child to build a strong financial foundation will help ensure their success and the success of our communities well into the future.