Should you start giving your child an allowance now?

This question has been on our mind quite a bit recently, as our 10 and 6-year-old sons continue to grow and mature. We have long planned on giving our two boys small money allowances, especially now that they are nearing the maturity level to understand it.

Our sons understand that money is used to buy things. In order to get an item, you have to exchange some amount of money for it. Similarly, they understand that there is only a limited supply of money. There is not an infinite amount of money. Thus, they know they can’t simply buy everything they want. They know because when they do sometimes ask for pizza, they do get the answer: “We don’t have the money for that this week”.

They also understand that different items have different prices. You don’t have to give much money for some things. However, you have to give a bit more money for other things. Not all items have the same price. They also understand that saving money is worthwhile, though this lesson has been guided greatly by mom and dad.

From my perspective, this means they are ready for an allowance (though my wife and I are still discussing it). On the other hand, I know other parents of children as old as teenage who don’t feel their child is ready for an allowance.

Our goal with giving an allowance is straightforward: we want to teach them the value of saving, charity and money management through their own experiences. However, with such a decision, we are left with a number of additional questions.

First, how big should this allowance be? There’s a fine balance to achieve here. It needs to be enough so that it’s relevant, but not too large enough so that they get spoiled.

Second, what kind of restrictions should we put on it? From my experience, an allowance given with no restrictions often ends up being spent on bubblegum, which kind of defeats the purpose. But we aim at encouraging our boys to split their allowance into four piles: spend, save, invest, and donate.

The “spend” pile is straightforward—that’s the money to do with what they choose. If they want to take their money and buy pizza or puzzle game, so be it. If they want some bubblegum, let them go ahead.

The “save” pile is similar—they can spend it on whatever they want, but it has to be a defined future goal. Perhaps they want a computer game, for example, or maybe they would like to buy a Christmas present for someone with their money. This would build up over many weeks, and if they choose, they could contribute more from their “spend” pile towards it. With this money, we can allow our sons to invest some of it into their mum’s business and be given back with interest at a later time.

The “donate” pile allows them to choose on a regular basis (say once every three months or so) to give the money to a noble cause of their choosing. We want our sons to understand that what they have is only a privilege that many others out there don’t have. This would open the door to a lot of discussion about others in need and allow us to introduce charities to them. I read with interest recently of a child who saved for over two years and donated a whole heifer cow via Heifer International. Very touching.

Our goal in the end is to teach our children why it’s awesome to manage their money carefully and plan ahead.

Wishing you a blessed weekend as you start giving your children money allowance, helping them build lasting personal finance management skills. n