In Depth
Personal Finance
Kids and cash
Tips on allowances and teaching youngsters about money
Last Updated March 22, 2008
By Joanna Pachner
The author is a Toronto-based freelance writer.
There are many ways to handle the allowance puzzle. Take this Winnipeg couple: Years ago, they decided that instead of giving their three kids cash, they’d help them earn their allowance.
When the children were small, the parents assisted them in collecting and selling cans. Later, the kids delivered flyers and ran a yard-care business, with the parents again pitching in during crunch times.
"In a sense, that was the allowance: our contribution to their efforts," say the parents, who asked not to be named.
What’s the best system for you? Here are some tips from experts and other parents for introducing your kids to money management.
How much
A common rule of thumb for setting allowance is giving 50¢ to $1 per year of age. That means a seven-year-old would receive $3.50 to $7 a week.
Still, a Decima poll of 650 Canadian parents found that the most common weekly allowance for kids seven to 13 is $5.
David McCurrach, author of several books about money for kids, however, thinks a better way to settle on an amount is to figure out how much you already spend on the non-essential purchases your children beg you for and turn that into a set allowance. Then list all the items they will now have to buy for themselves.
Some parents give their kids a say in the amount. For example, the children have the option of getting a small allowance or a larger one if they perform extra chores over and above their regular household responsibilities, essentially earning a larger salary for "overtime."
How often
Weekly is best, according to many experts. It keeps a regular flow going to replenish kids’ pockets without frustrating waits, and spans the weekly spending cycle of school-day routine and weekend splurges.
But handing out allowance on Friday night is a bad idea — too much temptation to spend it all over the weekend.
How early
Most financial experts recommend introducing the topic as soon as kids show an interest and grasp the concept of money — in other words, an understanding of the fact that it can be exchanged for things you want.
As early as age four, kids can start to save and help make spending decisions. Once they’ve hit six, they’re capable of basic budgeting.
That said, a survey conducted by Environics Research for CIBC found that the average starting age for allowance in Canada is seven.
How to manage it
Allowance, experts advise, shouldn’t be treated as a gift but a teaching tool that helps kids learn how to manage money.
McCurrach suggests splitting allowance into three portions: spending, saving and sharing (that is, giving to charity). The saving part could simply be for a large item the child really wants. Even at a young age, parents should pass along a lesson like the one in the Sammy Rabbit books: "Save a dime from every dollar."
For older children, the savings could be the kids’ contribution to their university tuition, perhaps starting in middle school and raising the ratio of the total allowance dedicated to savings with each year.
Make sure the kids stay on top of what they’ve saved so they can see progress. Many banks that offer kids’ accounts provide bank books perfect for this purpose.
And encourage them to keep a journal tracking what and how much they spend their money on.
It's important to let them make mistakes. That means not bailing them out if they spend money they had intended for a special purchase.
Finally, some parents believe allowance is an entitlement, not a right. So, for example, if the child has not done his chores that week, no money.
For how long
Some parents give kids allowances until their early 20s, but 16 is a good time to stop, and certainly by the time kids leave home for college or university.
Still, the Decima poll found a 32-year-old receiving an allowance.
As the parent, that's your call.
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