Feb 01

7 Great Reasons to Give Your Child an Allowance

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Giving your child an allowance at a young age can be a great tool for teaching them about money management, perseverance, and caring for others for a number of very important reasons.  As a frugal dad, I want to teach my daughter to understand that money is a means, not an end.  That being cheap and miserly is not a good thing, but that purposely directing your money towards the things that really matter is both important and rewarding (read: being frugal).  It is with this mindset that this article is written.

It teaches them about managing money

As a frugal father, I think that having an understanding of managing money is an important skill that I want my daughter to learn.  Everyone learns about saving, spending, and debt at some point in their lives and sometimes these lessons are not easy ones to learn.  By giving her the ability to manage money at an early age, I hope to help her avoid learning these lessons when she is older and when the financial stakes are much higher.

7 Great Reasons to Give Your Child an Allowance

7 Great Reasons to Give Your Child an Allowance

It teaches them that money is finite

The understanding that money is finite may seem painfully obvious to us as adults, but to a young child, this is not an easy concept to grasp.   Unless they are given an allowance, and given it in a way that is meaningful, children can view money as a very abstract thing.  Having them save and spend their own money (including paying for it with cash by themselves at the register) makes things very concrete and understandable

It teaches them that there are ‘good’ purchases and ‘bad’ purchases

I allow my daughter to spend her money on virtually anything that she chooses.  No, this is not always easy when my ‘parent mind’ kicks in and knows that she may later regret her money choices, but it is important to stand back at this point.  Allow your children to make decisions and to face the positive or negative outcomes – this is a very powerful way for them to learn.  Hold back.  Let them experience ‘buyer remorse’ and the satisfaction of making good purchases as well.

It teaches them about patience

What I have chosen to do for larger purchases is to have my daughter contribute a certain (achievable) percentage of the total cost.  In the case of the iPad Mini that she currently wants, I am expecting her to contribute 5%.  I set the percentage at a level that is certainly achievable for her, but that requires her to save over time and to consider forgoing other purchases in the meantime.  We have spent the past couple of weeks researching the different models that are available and trying them out in stores.  She now knows what model she wants and knows how much she has to save.

It teaches them the difference between ‘wants’ and ‘needs’

My daughter knows that I will always provide all of her needs.  I have told her so and have always done so. We have discussed that ‘needs’ include healthy and abundant food, clothes that fit her and that keep her warm, a safe and comfortable home, and a dad who loves her unconditionally.  Everything else constitute ‘wants’.  They are extras.  Her allowance is to be used for ‘wants’, paid for either exclusively by herself, or with some help for more expensive items.

It teaches them about spending, saving, and sharing – a.k.a. The ‘Three S’s’ Principle

I have devoted a big part of whole separate post to this ‘Three S’s’ principle and how it works.  The important idea though, is that it is important to take our allowance and put some aside to help others and to also put some aside for a rainy day.  Please read the post for more details.

It teaches them to be Independent

This is a tough one for some parents.  Some parents feel an urge to step in and protect their young ones from making mistakes.  The problem with this approach, however, is that it prevents children from learning from their own mistakes and successes.  Take a step back.  Let your children experience taking responsibility for their choices and becoming independent.   They will make ‘bad’ decisions, but they will also make ‘good’ ones.  This is one key way by which they grow and become closer to the people they will become as adults.  A gradual release of responsibility is key here.

On the Topic of ‘How Much Allowance is the Right Amount?’

There are many ideas surrounding this question.  My idea is this; give them enough so that they ‘could’ buy a couple of things each week in addition to saving and sharing an amount as well.  The amount should neither be too small as to avoid the temptation to go out and spend it right away (this temptation is key to learning), nor should it be too small that there is no temptation to go out and spend it right away.

As an example, my daughter is five years old.  I give her $4 per week.  I expect her to save one dollar and share one dollar, but the other two dollars are hers to spend or save as she chooses.  I think a target of 25% save, 25% share, and 50% spend is reasonable for us and our situation, but feel free to adjust it to fit your specific needs.  Just make sure that all three components are addressed consistently.

One easy way to do this is to set your ‘spend’ amount and them double it for the ‘save’ and the ‘share’ components.  Please let us know if you have found a different way that works better for you and your family.

As a frugal dad, I have written some other articles that might be of further interest to parents.  Here is a link to my other parenting and children posts.

I really appreciate you taking the time to read my article.  Please share it if you feel that a friend and/or your social media community might enjoy it.

Can you think of any other reasons why giving young children an allowance is a good idea?  Can you think of any reasons for not giving young children an allowance?  We’d love to hear from you if you have something to say.  Please leave a comment below.  Cheers.

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Author: Jason Milburn Google





Frugal dad – focusing my money and energy towards happiness and the things that matter most since around 1985.

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  1. Laura Alary

    Hi Jason. Thank you for another thoughtful and comprehensive article. I am particularly sympathetic to the goal of fostering independence in children.

    I recall gritting my teeth when my daughter forked over ten dollars for fluffy plastic pens when she could have been spending her money a good book. When the pens broke a day later—of course—she was hit hard by a case of buyer remorse. The good news is, she made a different choice next time. Had it been my money that was wasted, I doubt the incident would have made much an impression on her. Worse, had I rescued her from making what I was pretty sure was a mistake, I suspect she would only have learned that I do not trust her judgment, so maybe she should not trust her own. Not the message I want to send…

    Here is my question for you: what are your thoughts on whether or not an allowance should be conditional upon doing household chores?

  2. Jason

    Hi Laura. Thanks for sharing that story. I have gritted my teeth a few times too, when I knew that my daughter would probably later regret her purchase. In fact, she has made a few purchases that she later regretted making. These were important lessons for her to learn, and ‘rescuing her’ from making these mistakes, as you pointed out, would prevent her from learning these lessons and maybe even learning not to trust her own decisions. I really appreciate you bringing these important points into the discussion.

    Like you, however, I have found that she has come to choose her purchases more carefully. Now she is at the point where she can actually delay her purchases if she has a bigger purchase goal in mind.

    In terms of an allowance being conditional upon doing household chores, my personal feeling here is ‘no’. As adults we all do a huge amount of unpaid work to run a home and to be good parents. This is also an important lesson for children to learn. If I pay her for doing chores, the perception this might impart is that we do things only to receive a monetary reward.

    With that being said, I certainly do expect my daughter to help around the home. I expect her to put her dirty laundry in the laundry basket, to feed her fish and our cat, to help set the table for meals and to help prepare these meals. I also sometimes ask her to help me do the dishes. I explain that these are things we have to do because we are a team – we both need to chip in to maintain our home and to have good food to eat and clean clothes to wear. I do not tie the performance of these chores to receiving an allowance. She should do these chores because they need to be done, not because she will get paid.

    My reason for giving her an allowance is to give her the opportunity to learn about money management, patience, and delayed gratification (as well as the good feeling that comes with achieving a long-term goal).

    I can’t recall ever giving her ‘extra’ money for ‘extra’ work, but I do not think I am against this idea. I just want her to be clear that there are things we have to do to help out in the home that we do not get paid for. Maybe as she gets older and can do more things independently, I will have to revisit this idea. In the meantime, I view allowance as one tool for achieving one set of learning goals, and that helping out around the home with everyday chores without payment is one tool for achieving another set of separate learning goals.

    What do you think about the ‘allowance tied to chores’ idea? I’d really enjoy hearing your opinion on this matter as I often ask myself if I am doing the right thing and sending the right messages. I am always open to the opinions and approaches of others.

    Hope to hear from you soon.

    Kind regards, Jason @ froogalism

  3. Laura Alary

    Hi Jason. Thanks for the reply. I’m inclined to agree. I have always wanted my children to have the sense that they do simple chores because they are part of a family, and we all have to work together to care for our home. As you say, there are many things in life—not just at home—we do without remuneration, simply because they are helpful, or worth doing. I don’t want my children to go through life calculating the dollar value of everything they do, or being motivated primarily by money.

    Having said that, there have been lots of occasions when I have become so tired of tripping over dirty clothes and stepping on blocks and marbles, that docking the allowance has been the easiest leverage. I’ve always done this reluctantly, and it feels like a desperate act, rather than a conscious and wise choice!

    It helps me to think of an allowance as a tool for learning, intended to teach specific things. This approach feels more consistent to me, so I’m going to give it a try. But I still need a really good strategy to deal with the clutter!

  4. Jason

    Hi Laura. Thanks for your reply. I really appreciate you taking the time to write a response.

    The topic of allowance is a really worthwhile one for parents, and I do appreciate all of the ideas that you have presented here. As a committed and caring mother, I am sure you will find a way that works best for you and your family. I’d love to hear from you again. Please let me know how things go, and also if you find a good ‘dealing with clutter’ strategy (I could really use one too).

    Wishing you and your family a wonderful weekend.

    Kind regards, Jason @ froogalism

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