Here are some questions and answers about allowances:
How should I decide how much allowance to pay my child?
A rule of thumb is a weekly amount that is the child’s age in dollars: $5 for a 5-year-old, $10 for a 10-year-old and so on. Parents can consider a larger sum, paid monthly, when the child becomes a teenager, said John Lanza, author of the book “The Art of Allowance.” That “breakthrough” allowance, he said, can help the teenager begin budgeting over a longer period.
If money is tight, the institute’s Financial Literacy Commission suggests that smaller amounts — even a few dollars a week — can help teach the same lessons. The size is less important than what the child does with the money, Mr. Almonte said. The commission offers additional tips on its website.
How can I encourage my child to save when interest rates paid on savings accounts are low?
The premise of saving money over time for larger goals is important regardless of interest rates, financial advisers say. But seeing a balance grow by compound interest builds enthusiasm. One option is to pay a more generous rate on your child’s savings out of your own pocket or to match each dollar your child saves. Mr. Almonte recalled that his father, who stressed financial lessons with his children from an early age, would write a check — “He sort of made a ceremony out of it” — to match the cash his sons had saved over the previous year.
Should I require my child to work in exchange for an allowance?
While many parents favor linking an allowance to chores, that’s not necessarily the best approach, said Todd Yuzuriha, a co-host of “The Money JAR,” a family finance podcast sponsored by Junior Achievement. He recommends decoupling chores from an allowance since the goals of each are slightly different. An allowance, he said, is “a tool for parents to teach their kids about money.” Basic chores like helping around the house, he said, should be considered contributions everyone must make as part of the family.
“You don’t want your kid to think they’re optional,” Mr. Yuzuriha said, lest the child decide to skip taking out the trash and forgo the money. He suggests that parents consider paying only for extra work or projects, above and beyond shared household tasks.