Parents are often undecided about whether to give their kids an allowance. Some feel that kids don’t need an allowance since everything they need is being provided for them while others argue that giving them an allowance teaches them how to be responsible and manage money. An allowance can be beneficial when done correctly. As parents, we are the primary models for our children when it comes to learning about chores, money management, and other important life skills. By the time children leave home they should have a clear understanding of how to live independently, care for themselves and manage their money properly.

An allowance should be work based, if they complete their assigned chores they receive their allowance, if the chores are not done, they don’t. By learning that money must be earned, kids acquire an understanding of the real world, where income is based on work completed.

A study done by T. Rowe Price found that having conversations with kids about money is critical to raising financially savvy kids. They also found a significant benefit in letting kids experience money, and providing an allowance is one way to do that. Parents who combine conversations with experiential learning are most likely to have financially smart kids. https://www.troweprice.com/corporate/us/en/press/t–rowe-price–kids-who-get-an-allowance-are-more-money-savvy-th.html

The Center for Retirement Research at Boston College found that kids between ages 8 and 14 who got an allowance were two times more likely to feel knowledgeable about managing their money than kids who didn’t. When parents had open discussions about finances, half of the kids felt confident about managing their own funds, compared with only 14 percent of kids who do not hear these discussions. https://crr.bc.edu/in-support-of-allowances-for-kids/

The American Academy of Child and Adolescent Psychiatry found there are benefits to including chores in a child’s routine as early as age 3. Children who do chores may exhibit higher self-esteem, be more responsible, and be better equipped to deal with frustration, adversity, and delayed gratification. These skills can lead to greater success in school, work, and relationships. https://www.aacap.org/AACAP/Families_and_Youth/Facts_for_Families/FFF-Guide/Chores_and_Children-125.aspx

Chores also help kids perform better in school, develop better relationships with their peers and helps to build their self-esteem. https://www.psychologytoday.com/us/blog/evidence-based-living/202503/research-confirms-that-chores-are-good-for-kids

Get Paid for Working

An allowance should be treated as a paycheck for completing jobs that have been assigned to them. All jobs should be age appropriate and clearly defined. Plainly communicating what they are responsible for will give them direction and understanding. If tasks are not completed an allowance should not be given. This prepares them for their future, no employer pays an employee for work not done.

Give Direction

When you assign chores to your kids show them how to complete each job. They need to be taught how to clean, make beds, wash the dishes, do laundry, care for pets, put away groceries and perform other household tasks that they will need to do when they are adults. Guide them through each task so they know how to properly do the job. This will benefit you because the job will be done correctly, and it benefits them because they will grow up knowing how to take care of themselves.

Chores and Allowance Develop Financial Skills

Chores and allowance teach kids the fundamentals of work and money. Growing up knowing how to handle money is a skill that will benefit them for the rest of their lives. When they have their own money to manage, they understand its value and learn to save and budget to get what they want. Savings should be considered a necessity, not an option. Setup a savings account for them, a percentage of each allowance should be deposited into the account. Show them how their money grows and collects interest. Working and earing their own money fosters a strong work ethic and an appreciation for the effort that goes into earning it. They learn the difference between wants and needs and the concept of delayed gratification when they save for a purchase.

Decision-Making and Outcomes

Allowance teaches kids there are consequences for their financial decisions. If they spend all their money as soon as they receive it, they will be without money until their next allowance is paid. If there is a major purchase they want to make they will learn how to save a portion of each allowance until they have enough to buy it. Learning these lessons early teaches them to be financially responsible as adults.

An allowance should not be a child’s only financial education, be open and honest with your kids about everything related to money. They should leave home knowing how to earn a paycheck, pay their bills, save and invest, handle credit and debt, manage bank accounts, manage a budget, file their taxes and live within their means.

The goal of an allowance is to teach kids how to manage and budget their money and perform jobs essential for living. For very young children a small allowance and a few basic chores gets them started. As children get older, their allowance can become their entire budget, used for entertainment, buying gifts, buying their clothes and essentials while still contributing a portion to their savings account.