How to establish an allowance for your child

by Denise Fesel
USAGK Financial Readiness Program

An allowance is a certain amount of money given on a regular basis. It is a great way to get children to learn the value of money and basic money management skills they will need later in life.

Many parents have not established an allowance system for their children, and when their children reach young adulthood, they have little to no concept of the true value of money until faced with financial hardship in most cases.  Children develop a fascination with money at an early age, and having money of their own excites and motivates them. Kindergarten age is a good time to start giving children an allowance, although some parents start earlier.

The most common question asked is, “How much allowance should I give?”  Here are some tips to establish an allowance system that has proven to work.  

This depends on your family budget and personal situation. One suggestion could be $1 for every year of age. So, a 5-year-old would get $5 and a 12-year-old would get $12 a week.

Another option is to start with a certain dollar amount and increase it by $1 each year. The starting amount is a personal preference and should be within your budget and based upon your child’s spending habits.

If your child is older when you start this process, you might want to talk about how much they wish to receive each week. If they have no idea, see how much they spend on average each week and use this as a gauge. This is also a great time to establish their budget, allowing adjustments if necessary.

Allowances do not have to be paid weekly. Some parents pay their children when they get paid, which may be every other week or bi-monthly.

Others give a monthly allowance to encourage better budgeting skills. Most would suggest a minimum of once per week.

Allowances help parents teach basic money management and economic principles. How often does your child ask to buy something when they are out shopping? By giving an allowance instead of getting pressured to buy something you can let your children decide to buy or not to buy things, further promoting financial goal setting.  If they have an allowance, a parent’s reply can be, “You get an allowance, so it’s up to you to use your own money.”  This way, children can begin to learn the concept of money and its limited resources.

Maybe you decide to set the allowance given based on chores or grades. This is another approach that might seem appealing to you, but is often considered a mistake. Chores and grades should be considered a responsibility that should not be associated with money. This approach takes away from the money skills that children might otherwise learn because children may not do their chores if they only have to give up a small allowance or get good grades for other reasons. The purpose of an allowance is to teach money skills that may otherwise be lost if strictly tied to chores or grades and not regular and consistent. As a compromise, you may look at paying a base allowance and let your child make additional money if they complete additional chores during the week or get good grades throughout the school year. If those responsibilities are not fulfilled, the loss of privileges would probably be more appropriate than the loss of allowances.

Of course you don’t want to let your children buy everything they want immediately if they have the money. A very valuable concept to teach them is the concept of saving. By saving money, you can buy something more expensive tomorrow or have money set aside in case of an emergency in the future. At the same time, the money given as an allowance is now your child’s, so you must let them decide how they spend it as part of the learning process. You should still give guidance as the parent.  For example, when you are shopping, and your child asks to buy something, ask them if they are sure it is what they want and emphasize the importance of saving a bit for later.

Along with the allowance, you can establish some restrictions. For example, you should require your child to set aside a specific amount into their savings. So, if the allowance is $3, for example, then perhaps $1 should be set aside in a piggy bank for savings. You can even set aside a percentage for charity or donations as well. To encourage long-term savings, you may want to establish ways to earn money toward long-term savings such as college or other like goals.

Budgeting for different items or spending categories may be easier for your child. For example, you could give a clothing allowance in addition to the normal allowance. Money for the clothing allowance is only to be spent on clothing.  And the same would apply for school supplies.

Some parents find it difficult to carry around their children’s money when shopping. In this case, it may be easier to open a bank account where the  money can be deposited weekly. Then, let your child withdraw the money needed so they can watch the amount in their savings account decrease. This way, your child will learn bank account management skills and help them practice math.  

Remember, children learn not only by example but by trial and error. Don’t be afraid that your child will not spend their money wisely. It’s much better that they make mistakes now when they are young rather than later in life. Unfortunately, money skills are not taught extensively in school, so it’s up to parents to help children learn about money and the value of savings.

For questions, contact the Army Community Service Financial Readiness Program, located in Bldg. 2917 on Pulaski Barracks, at 493-4151 or 0631-3406-4151. You can also go online and visit or check us out on Facebook at!/KaiserslauternACS.