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Being a parent comes with many responsibilities. You’re in charge of teaching your children a seemingly endless number of lessons to help them thrive later in life. Many of these lessons will fall under the heading of how to manage money.
One of the most popular ways to teach your kids about money is with an allowance. According to the AICPA, around two-thirds of parents (66 percent) use this type of financial teaching tool on a weekly basis.
What’s a good monthly allowance for kids? This guide will help you understand the different types of allowance structures and how much allowance different families give their kids. You’ll also discover the financial benefits an allowance can offer, along with some common mistakes you should try to avoid.
If you’re looking for even more ways to teach financial responsibility to kids and teenagers, you might want to consider Greenlight. This unique financial management tool helps kids and teens learn to save, invest and manage their money. Parents have the ability to deposit allowance money directly into their child’s Greenlight account and can track the purchases their child makes with their Greenlight debit card. Kids have the ability to use debit for purchases in store and online and can learn how their saving, spending and investing habits impact their long-term financial goals.
Types of allowances
The amount of allowance to give your kids and what they need to do to earn the money are factors to consider. There’s no “perfect” way to use this financial tool. Instead, you have options. As a parent, you may choose between a variety of structures and ultimately come up with a customized plan that suits your family best.
Below are some common types of allowance structures you can use for inspiration.
- Chore-based allowance. According to a survey by T. Rowe Price, most parents (59 percent) give an allowance because they want their children to understand that they have to work to earn money. Using the chore-based allowance structure, you can pay your children based on each individual chore they complete or offer a set amount of money each day or week that the child checks their responsibilities off a to-do list.
- Reward-based allowance. Some parents give kids a chance to earn an allowance when they complete other reward-based activities—aside from chores. A child might be able to earn money by making good grades, reading a book, mastering a new skill (sports, music, etc.) and more.
- Gift allowance. Around 16 percent of parents give their children a “gift” allowance. This type of structure does not require the child to earn their allowance. Instead, the child receives a preset sum of money each week.
- Hybrid approach. If you like aspects of more than one allowance structure, you can create a customized solution. For example, your kid might be able to earn money by completing chores and getting good grades. Or, you might use the gift allowance approach with the occasional bonus opportunity when report cards come out.
How much allowance should you give your kids?
In addition to having different philosophies about what kids should do to earn their monthly allowance, parents also differ on the subject of how much allowance a child should receive. The most common amount kids receive is between $11 to $20 per week. Around 14 percent of parents give kids $5 or less per week. At the higher end of the spectrum, some 7 percent of kids receive a weekly allowance of $51 or more.
At an early age, giving your child an allowance in cash—that is, physical currency—can help them practice counting, adding and making change. As your son or daughter grows older, a kid-friendly debit card can offer numerous benefits that might be worth considering as well. In many ways, a debit card is an essential tool for parents teaching financial responsibility to teenagers—and the sooner you can start your kid on debit, the more opportunity they’ll have to learn.
Financial benefits of an allowance
Giving your teen or child the opportunity to earn an allowance and manage those funds can help develop a number of important financial skills including:
- Strong budgeting habits. Along with an allowance, you can make children responsible for certain expenses each month (like phone bills, streaming services, sports activities, etc.). This combination of earning money and paying bills can teach and reinforce the importance of budgeting.
- Healthy spending choices. It’s important to understand the value of not buying something today in order to afford something you want more tomorrow. When children have the opportunity to make choices about spending or saving with their own money, it can help drive this point home.
- Financial independence. When a child has the ability to earn money and spend it in ways that are important to them, it can build a sense of financial independence and pride.
- An appreciation of hard work. When you tie an allowance to positive actions, like chores or good grades, it can demonstrate the value of working hard.
- Solid saving habits. You can use an allowance to teach your child about saving. For example, you can challenge your child to save a certain percentage of every dollar they earn for the future. You can also help your child learn to save for short-term goals—like a new pair of shoes, toy or concert ticket.
- A generous attitude. Some parents encourage their children to dedicate a portion of their allowance to helping others. One study found that children are 20 percent more likely to give to charity when parents talk to them about giving.
What to watch out for when giving an allowance
Although an allowance can be useful as a financial teaching tool, it can sometimes trigger unintended consequences. Try to watch out for the following allowance pitfalls:
- Connecting chores to an allowance might fail to establish the fact that taking care of household responsibilities should be shared by everyone in the family.
- Kids might want to skip chores if they don’t need money.
- If you reward children financially for good grades, it could be tricky for kids with academic struggles.
- Kids may desire to spend everything they earn instead of saving.
- The lack of an allowance tracking system can make it harder for kids to stay motivated and learn important money management lessons.
Setting guidelines in advance—or when situations arise—may help you avoid many of the issues outlined above. For example, you can create a separate place (or bank account) for your child to save money. You could also let your child know that all family members share household duties, and the financial reward is just a bonus. Failing to complete chores, however, could come with negative consequences, such as loss of privileges.
You may also need to tweak traditional allowance approaches in some cases. For example, if you have a child with academic struggles, you might institute rewards for positive actions such as studying, completing homework or participating in tutoring sessions.
How Greenlight can help manage allowances for kids
Some parents want a tool that can help young children learn how to spend, save and give. Other parents are ready to begin the process of teaching financial literacy to teens. Either way, these lessons will be most effective when your child has a system in place to manage the money they receive or earn. That’s where Greenlight can help.
Greenlight offers a number of benefits to parents who want to teach their children about money. In addition to the Greenlight debit card, the company also offers parents an app that can do the following:
- Create and track chores
- Schedule automatic allowance deposits when chores are marked as completed
- Receive real-time notifications when a child uses their debit card
- Transfer funds electronically to your kids as needed
Kids and teens, meanwhile, get their own app that can be used to track spending, set savings goals or monitor the growth of their investments. Young children can use Greenlight to learn how to make purchases on debit without overspending their account balance, and older children can begin understanding the value of delayed gratification, compound interest and investment returns. If you’re looking for a tool that offers basic money skills for kids and financial responsibility for teenagers, Greenlight could be exactly what your family needs.
The bottom line
Why is an allowance for kids so important? Many parents want to educate children about money so they’ll be better prepared to manage their finances in adulthood. An allowance is a solid financial teaching tool that can help you accomplish this goal—whether you’re a parent who wants to help young children learn how money works, or you’re ready to teach financial responsibility to your teenager.
How much should you give your kids for allowance? It depends. While many parents give their children between $11 and $20 per week, there’s no one-size-fits-all approach. It’s okay to customize an allowance system that works best for your family, and digital tools like Greenlight could make that process easier.