Pricing Allowances for Kids

How often should you pay your child their allowance, and how much should it be? If you're not making your kids allowance contingent on chores, should he or she get less money than if they were to work for it? Pricing allowances for kids deserves some careful thought.

Whether or not chores are involved, a pretty standard structure that kept popping up in my research is that children get either fifty cents or $1 weekly for every year they are born. This is a convenient way to price an allowance because the concept is easy for the child to grasp, and it’s simple to divide the money among the various parts of your child’s budget. This ascending structure also neatly takes care of the problem of when and how much raises should be.

If the dollar-per-year system seems arbitrary to you, there are more thoughtful ways to price an allowance. David Owen writes in First National Bank of Dad that he chose an amount that gave his children enough (after savings) to practice spending but not enough to buy everything they wanted. This makes setting and adjusting the children’s pay scale slightly more complicated. Make sure you revisit the allowance regularly; most of my reading suggested this be an annual conversation conducted on a birthday, and I’d even suggest quarterly.

Owen’s approach also allows you to tailor your program to your socioeconomic circumstances. Former wealth advisor Richard Morris and financial journalist Jayne Pearl in their book Kids, Wealth, and Consequences suggest building the system around what you want children to learn from managing money, regardless of the net worth of your family. In the case of very wealthy families, they recommend calculating the “intergenerational equity” of the child and coming up with an allowance to reflect that number.

In our family, from ages three to seven, we use a basic formula: every week each child is given seventy-five cents per year of age. We pay in quarters so that the total is easily divisible by three (we structure our budgets by the Give, Save, Spend concept, so this makes distribution easy). hosts a platform for children and their parents to comment on what they believe to be proper compensation for households tasks such as chores. I’d love to know how other people structure allowances though, and what your rationale is for how and when you pay! Please feel free to share in the comments below.

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