December 13, 2019
What we’ll cover:
As with so many other aspects of parenting, there’s no clear-cut approach to allowances. Heck, there’s not even a single definition for the word (go ahead and look it up).
Depending on your own childhood experience, current financial situation and what your kid already knows about money, broaching the topic of allowances can feel pretty complicated. So let's break this down.
On the plus side, we all know allowances can be an opportunity to teach children about money and have them pitch in with household chores. But how you approach allowances can be a delicate balance. Maybe you're the type of parent who doesn't want your kid to expect cash just for doing the dishes. After all, no one's going to give your son or daughter cash for doing their own dishes when they hit adulthood.
But let’s stick with the benefits of allowances for now.
No, there is no right way to give (or not give) your children an allowance...
Many of us learn by doing. Parents know this can be especially true for children. By giving kids some sort of allowance, you’re not only instilling a sense that money is earned (not given), you’re also providing them with the opportunity to make decisions about how they’ll spend that income.
By having their own money to spend, children can learn the true cost of things, how to save for what they want, and how to budget in order to make their money last longer. Think of it as their introduction to personal finance.
Kids can also learn another basic life lesson – some jobs pay more than others. For instance, you may pay more for a chore like washing the car, and less for a simple task like making the bed.
No, there is no right way to give (or not give) your children an allowance (welcome to the joys of parenting, where every answer to your burning question feels like a wishy-washy 'maybe'). But here are some general rules that could help.
Deciding whether or not to grant your kid an allowance is entirely up to you. But you may be curious about what other families are doing. We spoke to three parents, each with vastly different approaches to how and why they chose – or chose not – to give their children allowances.
Resides: Houston, TX
Children: two (ages 11 and 13)
Allowance: Yes – given without conditions.
We decouple allowances from chores. When I grew up, allowances were linked to chores, and I found myself saying, ‘You know, I actually don’t need the $5 this week, I’m not doing my chores.’ We need our kids to establish financial responsibility for themselves. I wanted to avoid the I want, I want, I wants. If you want, then you save.
We give it out on a monthly basis, and it’s currently up to $30 a month. It’s a guaranteed basic income. They can spend it on anything legal. My son likes to buy video games. My daughter used to spend everything on candy. Now, she’s saving because she wants to go on a family trip to Paris. I said, okay, this is how much your ticket will cost. She’ll pay for hers and we’ll cover the rest of the family. They can also earn more by doing special projects, like taking care of their cousins.
As soon as the gimme, gimme, gimme started, which was about 7.
There’s definitely a lot more dialogue about money. And it’s not stressful. It’s, ‘This is money and it’s a part of the world.’ They can actually see what’s going on with their money, which is good.
Resides: Annapolis, Md.
Children: three (ages 14, 17 and 19)
Allowance: Yes – and they have to earn it.
You get what you earn. There are expected responsibilities, and then things you do above and beyond. It’s by the job, or piecemeal. In life, some jobs are harder and pay more, and some jobs are easier and pay less. From early on, kids should learn that if you work harder, you get more money. Some weeks, they don't end up doing the chores, and they don’t get paid. Each kid can also ask for more chores if they’re trying to earn more for something. This approach also saves me from having to nag all the time; they can pick and choose what they like to do. I’ll text the kids from work and say, ‘These things need to be done – you sort out who’s doing them.’ It’s not acceptable to do nothing, but if one of the kids is having a busy week, I might let them slide.
We give different amounts based on the job. So, $3 to empty the dishwasher, $1 for watering plants. We also have a well, and every week someone has to lug 50 pound bags of salt from the garage to the basement, and dump salt in the water conditioning unit. That’s a $10 a week job.
Our oldest was in kindergarten.
Hannah [the 19-year-old], especially, is very money conscious and savvy about money. She’s in New York for school, and is very cognizant of how much things cost. I like to think it’s because of how they were raised. They don’t just get anything they want. They have to earn money to buy their own stuff. I think they’ve learned the value of money.
Resides: Philadelphia, Pa.
Children: three (ages 2, 4 and 7)
Allowances are rewarding contributing to the household, which is something they should be doing anyway. I don’t get an allowance for doing the dishes. It’s how you contribute to the family. It’s being a part of a community. I’m trying to instill that in them.
They get money occasionally from grandparents, or for birthdays, and we have a money jar we put it in that’s divided into three sections: saving, spending and sharing. We started doing that with my oldest when he started asking for stuff regularly at the store. He spends his money on toys and treats. We’re involved in a church, and he’ll donate to the church. Sometimes he’ll get upset by something going on in the news, and I tell him we can use his share money to help. He’s donated some of his share money to the ACLU.
When my oldest asks for things now, he’ll say, ‘how much money do we have?’ I think he’s connecting the dots.
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.