Should kids receive money in exchange for doing their chores, and more unanswered questions about creating an allowance system that works for the whole family.
More than 70 percent of parents will give out money in exchange for chores, but should kids really be paid to contribute to household upkeep? Ron Lieber, finance columnist for The New York Times and author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money says no: “Allowance ought to be a tool for learning—the same way that you learn to use a paint brush, a guitar, or a clarinet. Kids should do chores without the expectation of compensation, because everyone in the household ought to be doing chores.”
Once you’re ready to open up a dialogue about money and start your kids on an allowance, follow Lieber’s expert advice for setting up a system that actually works.
1. Set a dollar amount.
Exactly how much money you dish out depends how much financial responsibility you want your child to have. If older kids who have developed the appropriate math skills are in charge of monitoring their entire budget—both their needs and their wants—you should provide a larger sum of money so they can learn to budget appropriately, says Lieber.
When allowance money is just for discretionary spending—candy, movie tickets—kids need less. Provide “just enough money to buy a few things they really want, but not so much that they don’t have to make difficult choices,” says Lieber. “That might be a dollar per year of age or it might be 50 cents per year of age—somewhere in that range would be fine.”
2. Ditch ceramic piggy banks.
“These little piggy banks are sort of useless. Maybe they can contain coins, but it’s hard to stuff bills into those little slots. You need to be able to put the money in a place that can actually hold it,” says Lieber. Start with a big plastic container or bin instead—the kind that holds the long fettuccini or two boxes of cereal at once. These containers not only hold a lot of money, but they’re also see-through. “There’s something cool about looking through the clear plastic or the glass and watching the crumpled dollars rise up and trying to guess how much is in there,” says Lieber.
3. Do your part.
As simple as it sounds, the key to building an effective system is to create a seamless system in the first place, says Lieber. Treat allowance like a ritual. “If you want to pay your kids every week, you actually have to have money on hand—and in small denominations. If you have two to three kids, that’s a lot of singles.” Make sure you visit the bank to get the correct amount of change on a regular basis. Then, you have to remember to actually give out the money on the established day. “Set multiple calendar alerts” if you need to, says Lieber.
4. Use real money.
To help streamline allowances, many people turn to apps like FamZoo and Allowance Manager, which allow you to track spending, make savings goals, and even transfer money to prepaid debit cards.
Though these tools can help solve the fundamental issues that make allowance systems difficult to maintain, Lieber says it’s important for kids to handle real money for the first three or four years of allowance: “After that, it’s perfectly fine to use a virtual app.”
5. Establish good habits.
Encouraging a give, save, spend system is a basic budgeting exercise that can help set kids up for financial success and teach them valuable lessons about how adults handle their money, says Lieber. “Most of us try to keep some money aside for spending on money on things that make us happy, save money for things in the near to long time future, and we hope to have a little bit leftover for people who have less than we do.” There’s no right or wrong way to divvy it up, but 1/3 to each jar—give, save, spend—is an easy ratio for kids to understand and might be a good place to start, says Lieber.
6. Consider bonuses.
If the kids manage to save money for an extended period of time, consider adding an incentive: “Maybe there’s a year-end bonus,” says Lieber. “There’s no reason we can’t subsidize the savings for our kids.” Maybe it’ll make it easier to explain how some companies match 401(k) contributions down the road.