Giving your kids an allowance is an excellent opportunity to teach them about money, develop healthy financial habits, and form a positive relationship with their money—traits that will serve them well as they age.

When you use an allowance to its full potential, your children can learn about savings, investing, goal setting, spending habits, and much more. But without a clear understanding of what an allowance is and how it works, your children may begin to view it as an entitlement instead of a privilege. 

For many parents, granting an allowance may seem like a significant step. 

And, it is. 

Let’s look at five guidelines for setting up a successful allowance strategy.

Select An Appropriate Allowance Amount

While there are certainly many factors to consider regarding allowances, don’t overcomplicate matters for you or your kids. Maintaining a simple system that you and your child completely understand is an excellent first step. 

One of the most popular methods of granting an allowance is assigning a weekly dollar amount based on your child’s age. Start with a number that makes sense after you factor in their needs and your budget. Then, increase the amount at regular intervals, like annually or semi-annually.

Why let age be your allowance barometer?

  • First, this system imitates the concept of career and income growth. As you progress through your career as an adult, you typically make more money and must learn to manage that increase.
  • This method also provides your children with an incentive to keep it going. For example, if they are not behaving or managing their money properly, they will not get an increase at the next interval as they haven’t earned it. Set money milestones and check-ins with your kids to see how it’s going. 
  • Keeping the allowance based on age relieves tension and competition for families with multiple children. Now, your youngest can’t complain that the older sibling gets more.  

What About An Allowance For Household Chores?

If you had an allowance growing up, your parents presumably tied it to completing household chores, like cleaning your room, doing the laundry, helping with the dishes, etc. 

And since it’s been such a ubiquitous method, this may be the first one that crosses your mind. But it’s not always the most effective. Here’s why. 

When you award financial compensation for completing necessary household tasks, there’s a risk that your kids won’t completely understand all the unpaid work that goes into maintaining a home. As adults, no one will pay them to cook dinner, do the dishes, clean their clothes, etc. 

By not paying them in this way, your kids learn that there are some things they need to do as a personal contribution to their household, allowing their motivation to be the care and respect of their family, not a paycheck.  

Establish A Simple System

Once you’re confident on the amount to give each child, you’ll want to develop a repeatable and straightforward system for managing the money.

How can you teach your kids not to spend all their money in one place?

Distribute their allowance between a few financial categories, like short-term saving, long-term saving, charitable giving, etc. Say that for every dollar they receive, they must allocate a set percentage to their customized buckets. Doing so will teach them to balance long-term savings and short-term spending while also leaving a portion to help others.

Operationally, you can go to the bank with your child and set up a shared bank account. Then, you can establish an automatic contribution to their allowance and better acquaint them with the banking system.

Set Clear Boundaries and Expectations

Now you know how much to give each child and a simple system to manage the process. What comes next?

The fun part—setting boundaries and expectations. 

Here are three common considerations in this phase. 

  • Permission. Do your kids have to consult you before making a purchase? How will you monitor their spending? How can you engage them in conversations about their spending and saving?
  • Spending expectations. What will you expect them to pay for? For example, say you plan to pay for necessities, like clothes, school supplies, and activity fees but expect them to pay for “extras,” like movies with friends or video games. There should be no confusion around what you will and will not be paying for.
  • Accountability. What happens if your kids don’t follow the agreed-upon standards? How do you plan on correcting improper behavior or spending habits?

Let Them Make Mistakes

This point is perhaps the most challenging for parents. 

We all make money mistakes, and your kids will too. 

Maybe they’ll spend way too much on a flashy backpack they end up leaving on the bus. Perhaps the latest toy was alluring for a week but lost its luster as soon as the next release came out. 

That’s okay. 

It’s important to let your kids feel the disappointment of wasting their money on a small scale before doing it on larger scale items such as taking on too much student loan debt or buying a car they can’t really afford.

Bear in mind that there’s an essential difference between making mistakes and having accountability for your actions. It’s still critical to hold your children accountable when they make mistakes and not automatically “bail them out.”

Be there for them when they make mistakes and help them learn from those actions. You still want to maintain an open, empathetic communication line. 

Keep The Conversation Going

Giving an allowance is a gateway to conversations about budgeting, charitable giving, values-based spending, and intentional saving. Keep talking with your kids about their purchases, encourage them to voice their opinions, and work through their day-to-day spending questions. 

Giving an allowance is a golden opportunity to set your kids up for long-term financial success. 

Get in touch with our team today and learn how we can help you craft a household allowance strategy.

Additional Resources

  • Case Study: How John Chladek, owner of Chladek Wealth, handles allowances within his own household.
  • YNAB: An easy-to-use budgeting and communication tool.



The contents of this article are for general information and educational purposes and should not be construed as specific investment, financial planning, tax, accounting, or legal advice. Please consult with a professional advisor before taking any action based on the contents of this article. All investment and financial planning strategies involve risk of loss that you should be prepared to bear. We cannot guarantee any investment performance whatsoever, and past performance is not indicative of potential future returns.