Giving your child an allowance is a good way to teach them important life skills. For example, it teaches them financial responsibility by improving their budgeting skills, and it also teaches children the value of delayed gratification (saving up for something they really want).
But deciding how much to give them can be tricky. Most parents only have what they used to get as a child to go on, and comparing yourself to other parents is not easy when everybody’s personal financial situation is different.
Here are some help tips on deciding how much to give you child every week, month or quarter.
Use the Consumer Price Index
This is a great place to start if you only have the experience of receiving an allowance yourself to go on. Obviously, it is not fair for your child to receive the same as you did decades ago.
You may have only received a few dollars a week, which bought you enough to keep you happy, but a few dollars a week heading into the 2020s will get you very little thanks to inflation.
Use the CPI to look at the percentage change in prices over the intervening period and apply it your child’s allowance, it is likely that they could receive upwards of 50% more than you did when you were the same age.
You might want to also check out- 5 Important Reasons Why it’s Good for Kids to do Chores
Determine Allowance On Expenses
Another way to approach a kid’s allowance is to look at what they will be spending it on.
There are two main approaches here:
- Give a higher allowance and expect your child to cover some of their day-to-day expenses.
- Cover the vast majority of their day-to-day expenses and give them a small allowance to buy things that they want rather than actually need.
For instance, if your child needs a pair of sneakers for day-to-day activities when not at school, you can take the approach of handing over a larger allowance to let them decide whether they want to blow it all on an expensive brand or skimp and save the extra money for other items they feel are more important.
Or you can take the approach of buying the sneakers that he or she needs (you decide on the brand/price) and you give them a much smaller allowance amount for things like buying food and drinks when out with friends.
How Should You Increase the Allowance?
Once you’ve decided how the allowance is going to be allocated, you need to think about how it will increase over the years.
When children are young they will not want for as much as they do when they become teenagers and young adults. A good rule of thumb I use is increasing the amount by one dollar per year of their age.
To give you an arbitrary example, if you were to give your child an allowance when they turned 10 of $10 per week, then when they go on to turn 11 you would increase that amount to $11 a week. By the time they are 15 they would get $15 dollars a week and so on and so forth.
Again, you may want to increase by much more each year if you are expecting them to cover many of their day-to-day expenses.
The Choice Is Yours – But Avoid These Mistakes!
There are many ways to determine a child’s allowance and at the end of the day it comes down to what you want your child to be spending the money on.
Make sure to avoid the mistake of linking an allowance to chores (trust me, they’ll just stop doing them). You may, however, reward them for housework that is above and beyond their usual duties.
Secondly, don’t bail your son or daughter out if they spend it all, otherwise they will never learn anything about financial responsibility.
Finally, never take it away as punishment, instead revoke some of their privileges such as screen time. This is for the very same reason as above; they won’t learn any budgeting skills if they don’t know whether they are going to receive any money in the first place.
Do you give your child an allowance? How did you decide how much to give?
Let me know in the comments below!