The Simple Dollar Plan For An Allowance

Over the last several months, I’ve been troubled over how exactly to handle an allowance (or lack thereof) with my son. I’ve read dozens of articles on the topic and looked at many allowance solutions, but nothing has come together as having the right balance of things I want to teach my son about money.

When do I get started? I plan on starting this allowance plan on my child’s fourth birthday, when he is old enough to at least comprehend that you have to spend money to get things, and that sometimes you don’t have enough money to get the things that you want. At seventeen months, my son comprehends that you go to the store where there are a lot of things, sometimes you want some of those things, and you put a few of these things in the cart and take them home with you, but that’s about as far as his economic understanding goes right now.

How much do I start with? My plan is to start with $5 a week at age 4. This will give him enough resources to buy some candy at the candy shop or similar things if he so chooses.

Saving versus spending Naturally, any child with an allowance is going to want to spend part of that money. So, right off the bat, there will be an arrangement in which he spends half of it and saves half of it.

On spending Half of the spending portion will go straight in his pocket (probably in the form of five quarters at first). The other half will go into an “emergency fund” of sorts, which is savings for special occasions, like a trip or an expensive toy that he’s had his sights on for a long time.

On saving The other half goes into a jar for saving. I plan on literally using quarters for this, so ten quarters will go into a savings jar each week. I will let him watch the jar slowly fill up, then transfer that jar to an even bigger jar. I want this to go on for a while so he can really see the money build up, and I’ll probably do it in this physical fashion for several years. It won’t earn returns, but it does create the idea in his head in a very visible, tangible fashion that saving money means that it builds up over time.

How is the allowance earned? Each week, we prepare a checklist of chores that need to be done: making the bed each day, cleaning up the toys in the evening, and so on. For the first year, these will be really simple and basic. This list will take the form of a checklist, and we’ll check off the things as he does them. For each unchecked thing, his allowance gets docked a certain amount (probably a quarter at first). This way, he learns that the allowance money is earned, not given.

How can this grow over time? Each year, he’ll get a raise in allowance on his birthday. This raise will coincide with more tasks on his list: emptying the dishwasher, mowing the lawn, vacuuming, and so on. The checklist stays in existence with penalties for each unchecked item.

What about grades? My philosophy is that when he first starts receiving report cards with clear grades (early elementary report cards often aren’t clear), then we set a threshold for him to reach, say, a 3.0 GPA for the quarter. If he reaches that, he gets a permanent raise, but the goal for the next quarter goes up to a 3.25. If he doesn’t meet the goal, then the goal for the following quarter stays the same (or perhaps lowers a bit if his academic progress shows that he’s not as strong a student as he used to be). If the goal is a 4.0 and he keeps nailing it, I don’t mind giving raises over and over again – a student that can earn a straight 4.0 all the way along is both very bright and a diligent worker.

This is my current plan for an allowance for my child. My wife and I are still debating the grade situation, as she thinks that a good report card should be rewarded with a special treat like eating out. I think that would be fine with one child, but if we have multiple children, what do we do if one does well and the other does not?

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  1. Sean says:

    My sister-in-law made her kids save half of their allowance and half of every monetary gift they received from the day they were born. When they started working outside the home, they had to save half of their paychecks as well.

    My 18-year-old niece started last college last fall with well over $20,000 in the bank of her own money. She’s working her way through college and will not have to take out a single college loan.

    They’ve never paid for better grades. Doing well in school is one of those things you need to learn to do for the benefit of it, not because there’s money in it. You don’t get paid for taking a shower every day, but you do get a social (and ultimately an economic) benefit for it. School is like a capital investment of time that you make to earn more money later, and if you pay for grades you teach them that it’s not worth investing time and effort unless you get paid for it now.

  2. Canadian says:

    Sounds kind of similar to the system my parents used on me back in the day. I got around $2 a week I think. 50 cents to save, 50 cents to spend, 50 cents for gifts (when invited to birthday parties I had to use this money), 50 cents for church or Brownie dues.

    Only difference was that my parents did not tie this allowance to chores (or grades). They believe that I should do chores because I was a member of the family and therefore should contribute to this functioning of the household, and should not expect payment in return for this.

    As for grades, I’m not sure if they considered payment or not, but the difference in innate academic potential among their children might have convinced them against it. If one kid gets A’s without even trying, does he/she really need a reward for that?

  3. Debbie says:

    I really don’t like the idea of tying allowance to chores or grades because people should do chores and work hard in school regardless of whether they will be paid. External motivation is not the best way to be happy. I only like it for special situations where nothing else works (like, for many of us, weight loss plans!).

    The way my family did it was that when there was extra family spending money, we got an allowance and when there wasn’t, we didn’t. (I mostly didn’t get an allowance, but there were two periods of my life when I did.) And if there were chores to be done, we had to help. (We didn’t actually do much–cleaned our own rooms, loaded or unloaded the dishwasher, cleaned the bathroom, and later did our own laundry, plus other duties as required when company was coming). The two were obviously not related.

    I really like this method, at least when all the allowance is for fun. Of course, your child will be learning about your finances like when you get a raise and when there’s a big unexpected expense. I’m sure it’s heartbreaking to take away all or most of a kid’s allowance, but those cute little things want to help Mommy and Daddy! Of course, you personally are in such good shape that this is unlikely ever to happen to you.

    My upbringing would have been better if we had discussed various strategies (spending, short-term saving, long-term saving, donating). We were just told we could do whatever we wanted. (I saved all mine; my brother spent all his.)

    Another idea I like is transferring a line item of the budget to the child. Mainly I’ve heard of this as giving kids all of their portion of the clothing budget for the season and letting them spend it as they wish. If they spend it all on a pair of shoes, that’s all they get until the next budget period. Many kids develop a sudden interest in thrift stores, garage sales, discount stores, and other places they wouldn’t dream of visiting before they had the reins. If there’s anything you buy regularly for the child, like a Sunday treat, annual school supplies, etc., you could use this method.

    As your child gets older, you could also let him adjust the percentages for the different categories.

  4. Canadian says:

    In other words, getting straight A’s does not necessarily mean that you’re a diligent worker.

  5. Don says:

    I agree that an allowance is an excellent tool for teaching financial responsibilty for a child, even a 5 year old. However, I do question the intial amount–I think $5.00 is a little high; I would suggest a small amount ($1 to $2 at first) followed with a 25% increase each year. The important thing is to be consistent with the allowance. Good luck.

  6. Cheeky says:

    One thing to consider about eating out: As an adult we’ve been trained in childhood to reward ourselves with food. I have several relatives who are trying to lose weight, but they’re constantly bombarded with family, friends, and coworkers to celebrate everything you can think of (birthdays, years of service, anniversaries, a raise, holidays, meetings, haven’t seen each other in a while, etc.) I’m not saying NEVER go out for an ice cream or to McDonalds, but maybe the focus can be on going out or spending time with mom and dad, not the food. For example, going to the children’s museum, flying a kite, going on a picnic, etc.

    I love your blog. Thanks for your hard work!

  7. !wanda says:

    My mom considered getting straight A’s my duty as her child. Then again, she grew up in Taiwan, and the schools teach much more much earlier, so she knew there was no reason for me not to be getting A’s.

  8. Elizabeth says:

    I agree with the above commenters, money should not be tied to grades. In our house we always went out for a special dinner as a family at the end of the semester. One of the many reasons I don’t think money should be tied to grades is because (despite the inflated grading system in today’s schools) not every child is able to obtain an A. Some people are just smarter than others; what’s important is that you try. Also, I personally don’t think you should force a child to save his or her own money. Children need to learn the power of saving on their own. In my house growing up I quickly learned to save money up for more expensive toys that I wanted, while my younger brother would spend his money as soon as he got it. But guess what, he eventually (though it took a little longer) learned the value of saving.
    One thought I had for when I have kids (which is still very far down the road) is to pay them interest on their savings. For instance, one they save $100 maybe I’ll give them an additional $15, thus they’ll see more benefit to saving. Teaching kids to value saving is an important thing, and I don’t think it’s something that can be forced.

  9. Deena says:

    I agree with the other posters about not tying allowance to chores. For me, it’s just about learning to manage his money. We started giving allowance about four months ago. I give him $5 a week (on Sundays). $2 is quick cash or money he can spend anyway he wants on whatever he wants. When it’s gone, it’s gone. $2 is medium term savings for something a little more costly, like a Leapster game or something. The last $1 is for college savings.

    Anyway, he loves it. In the beginning he made some really poor choices. I expected that. But now, he’s making a lot better choices. He is way more discriminatory about his purchases. He hasn’t yet found anything he wants to spend his medium term savings on.

    On a side note, we don’t let him purchase anything that goes against our family’s values. And I have to admit, I discourage the purchase of snacks because our house is full of them.

  10. imelda72 says:

    There’s a big difference between earning money for chores and earning it for grades; a difference many of you grown-ups may have forgotten: it’s a LOT harder to get good grades than it is to do your chores! Even for good students.

    Personally, I think tying allowance to chores is just a good way to save the parents from headaches–if your child knows he won’t get money if he’s lazy about making his bed, then he’ll probably be sure to do it. You won’t have to nag or punish, simply remind.
    When it comes to grades, however, your child won’t have allowance on his mind all the time. He won’t behave well in class, learn his lessons, and do all his homework simply because he’s thinking about the next allowance raise. No, I think it’s more likely that the allowance will be a superfluous reinforcement of something well and done. When the report card comes, if he’s done well, he’ll be happy to get more money. If he’s done poorly, not getting the raise will make him feel worse.

    In response to Elizabeth–I disagree; by “forcing” his child to save at first, Trent will teach him the value of saving! How else do you expect kids to learn it?

    Last note: $5 per week for a 4 year old????!!!!!

  11. Ryan says:

    I don’t think there’s anything wrong with tying chores to allowance. It shows that to make money, you must work, which is how the real word operates.

    Also, money for grades is ok. (My parents don’t “pay” me for my grades, but if they did, there’s no way I’d be getting a D in Spanish) I disagree with the statement about how if getting A’s is easy, then they shouldn’t get rewarded. It shouldn’t matter if it’s easy or hard, it’s still an A.

  12. I agree that $5 a week is too much for a 4 year old. Actually, I’m not sure a 4 year old is ready for an allowance at all.

    But I do agree that saving should be part of an allowance system. And I would add that donating to charity should be part of it as well. Make it fun. Have your own family bank – where you keep the money and they can only withdrawal for approved purchases. That way you can teach them how to shop as well.

    As for grades – I don’t think they should be rewarded – especially with money. I think doing classwork and doing homework should be rewarded. The effort in and of itself is the important part. If you have a child with a learning disability, they may never have a 3.0 – even with hours of doing homework! The current school system does not recognize the differences in learning in children. I highly recommend you read books written by Dr. Mel Levine to learn more about the way kids learn.

    When you reward completing schoolwork, you also avoid rewarding one kid over another simply for report cards. I almost guarantee you that one of your kids will be naturally better at school than the other. One of our kids ALWAYS gets an award on award day at school. The other doesn’t. The disappointment reads all over his face. And the funny thing is – the kid who doesn’t win – he actually scores better on aptitude tests.

  13. Ponz says:

    My kids allowances have no strings attached. What’s the point? It’s “their” money. I want them to make all the mistakes, like blowing a month’s allowance on something totally useless, now, when the damage is only a few bucks. Making them save a portion of their money sends the message that you don’t trust them.

    Trent, when your son asks you why he has to save his money, what will you tell him? So he can go to college? (What’s that? Is there a playground there?) For an emergency? (Is something bad going to happen to me, Daddy?) Young kids have no concept of this stuff until they are well into elementary school, if then. When will you let him spend his savings? What will be a worthy expenditure? When will he get to decide?

    I’m going to digress with a story, but there is a point here:

    I was waiting to pick up dinner at the counter of a Chinese joint. There was a young man there, probably in his mid-teens, socializing with the girl working behind the counter. He seemed to be a nice kid, dressed in the typical baggy style of today’s youth, and was fairly unremarkable except for one thing. His spiked hair was dyed the most exuburant shade of purple I’ve ever laid my eyes on. I thought to myself, holy cow, what was this kid thinking? What kind of parents let their kid do that?

    Just then, an older (60ish?) gentleman walked in, caught site of the boy’s hair, and stopped dead in his tracks.

    He paused for a moment, broke into a grin, and said, “Son, that is the most outrageous hair I have ever seen! And I bet everybody tells you that you can’t have purple hair if you want to get a job and all that stuff. But I love it! And I think that if you want to have purple hair, now is the best time of your life to have it.”

    He was right, of course. Ever since then I’ve looked at the “foolishness” of youth differently. I want my kids to make mistakes. I want them to get into the occasional jam, to learn that there are consequences to their actions that don’t come from mom and dad. As long as there is no lasting harm to them or others, why not? If they want to blow their allowance on stupid stuff, fine. As long as there are obvious trade-offs (spend $$$ now, none later), they will learn the lesson themselves, which is the best way.

    Of course it is important to offer guidance. When my kids ask if they can buy something (that is not my responsibiity to provide) I tell them it is their money and it’s up them. If asked, I’ll render an opinion on quality, usefulness, or potential satisfaction. I might also point out the trade-off the purchase entails. (If you buy that Nintendo game you might not have enough for the new baseball mitt you want.) A long as it’s not dangerous, illegal, or inappropriate, it’s their call. And when we started doing this it was interesting to see how their desires for material things were suddenly curtailed.

    Also, we haven’t opened bank accounts yet for them, but when I do, I’ll give them an incentive to save by matching their interest or some such bonus.

    There, that’s my (long-winded) take!

    Great blog!

    Ponz

    PS – A great book about kids and money (and there are many) is “The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money” by David Owen. Full of common sense and aimed at making sound financial judgement self-evident to your “yutes”.

  14. Kristina says:

    I think my parents did well: I ended up more frugal than they are! During high school, my mother would beg me to spend more of their money, because they didn’t understand how I could be happy spending so little. Now I have tons of savings, no debt, and live a lot more cheaply than my friends.

    I don’t think their system wasn’t really planned out. If I asked for my allowance, I got it, if I didn’t, no one else was going to remember. So, I had to be responsible for remembering. I probably forgot about 90% of the time at first, and gradually learned to remember.

    They gave me a bank account and explained about interest, which was very exciting, even before I knew math. My money could earn money without me doing anything? I’d be a millionaire in no time! They showed me my bank statements where I could see interest accumulating and I loved depositing money.

    When I wanted something small, like candy or a comic book, my parents would buy it for me. This was the most crucial part of their unintentional plan. They encouraged me to save my money for something I really wanted. And you know what I learned after painfully saving up hundreds of dollars and then spending it on something I really wanted? What I bought never gave me very much happiness.

    My parents taught me to value my own money and not to blow it on things that I’m not going to care about.

    I don’t think your system is going to work because it’s pretty controlling. Even if your child goes along with it in the short term, he is probably going to rebel against the tyranny of an absolute dictator/money-manager eventually. An allowance is, ultimately, your child’s. Teach him what you value and don’t take his money and he’ll learn how to save.

  15. Michelle says:

    I wasn’t expecting so many commentors to agree with me.

    I don’t think an allowance should be tied to accomplishments.

    Chores are about personal responsibility, not rewards. And I think good grades should be their own reward. (Although I will be sure to say “I’m proud of you”).

    Just my opinion of course.

  16. Michelle says:

    Just wanted to add –

    I had an allowance as a child, and I don’t think I learned much from it. I think my attitudes towards personal finance were shaped mainly by watching how my parents managed money.

    So with my daughter, I am focusing more on being a good example, explaining to her why I make the financial choices I do, where our money comes from, and teaching her awareness of marketing and advertising.

    She’s only three, so I have yet to see how this all turns out. :) I expect I will eventually develop some kind of allowance plan, but I don’t know what it will be yet.

  17. Eric B says:

    What you do with rewarding grades is you teach an innate fear to fail.

    Jump to middle school. Your child has a chance to take honors English and Algebra, or take the normal classes. Why go for the hard? You might fail, and that would be punished! (by not getting a raise in the allowance.)

    Or there comes an assignment where there is an opportunity to take a risk and present a unique perspective and make the project interesting, or they can take the safe road and regurgitate the teacher’s opinions. If the reward is tied to an A, why take the risk?

    Reward hard work, and praise hard work in children (which is shown to have many positive effects as long as the praise is specific) but effects that are not based merely on effort stand the chance of gaming the system, and that’s the worst thing one can learn from the education system.

  18. Thomas says:

    Something along this line, since in my opinion it figures into the allowance and having them save half of it…… http://www.seedsofwealth.com/

    The program is a very interesting way to teach children how to handle money responsibly.

  19. Amy says:

    My parents rewarded me (and my brother) for accomplishments that they were proud of. Usually this was in the form of a family outing – anything from a trip to Disneyland (I grew up in Southern California) to a special dinner to a walk on the beach. Whatever it was, the kid being rewarded got to pick, and my parents would describe it as “Blank’s celebration whatever”.

    The basic point of these trips is that they were infrequent – the idea being that they were a spontaneous expression of my parent’s pride, rather than something we deserved for our achievments. What they were proud of differed for each kid (for me, straight A’s were normal, for my brother, passing all his classes was celebration-worthy) but they clearly conveyed that while achieving was its own reward, it was also something that deserved recognition and celebration within the family. I think it was a good balance, and I would definitely do the same thing with my kids.

  20. Sense says:

    Whoa! $5/wk at age 4? Inflation has hit the roof! I’m only 28! I probably started getting an allowance at 6, and it was .50 cents/wk for a long time, then moved up to $1/wk from the time i was 8 to about 14 or 15. By then, my sis and I were interested in buying things like boom boxes and tapes (we didn’t have a CD player until I was about 17), and my mom was adamant that our ‘job’ was school and being a kid, and didn’t want us working outside the home, even during the summers. At that point, she upped the allowance to a whopping $5/wk so we could start saving up for the things we liked. However, when I hit 17 or so, and graduated from high school, it was $20/wk, as I was saving for books for college and paying for school supplies. Throughout my childhood, we had chores to do every week, we could choose between the two of us to dust, sweep, dust, and clean the floors, clean the windows, clean the car, set the table, etc. It wasn’t entirely enforced, though–I usually just swiped areas down with a cloth and called it dusted. :)

    My parents had other ways for us to earn money: When I was 13 or so, I earned extra pocket money by working as a payroll assistant and receptionist for my dad’s company. It was fun, and gave me experience working for a real company, which paid off when I applied for a real job during the summers in college. Also, my dad came home and dumped his change into a jar–we were then allowed to roll all the change–in exchange, we were allowed to split the money. Also, as school was our ‘job,’ we received $1 an A on our report cards (my sister wasn’t as good of a student, so my parents quickly expanded it to a B after a six weeks or so). In addition, we got to have a pizza party if we did really well.

    If my sister didn’t do as well, but still tried really hard, she still got the money/pizza party. After all, it’s the effort that counts, some people are naturally better at school stuff. I would encourage you to not punish your kids if they really tried hard but couldn’t quite top a C.

  21. consumer_q says:

    Allowance:
    I think chores for allowance with youngsters can help them learn about Work. I go to Work and do tasks all day for pay, so my child doing the same at home allows him to learn about working for pay. At the same time, I think he should be aware that as a member of the household he does things to contribute to its upkeep.

    As he ages, he is weaned off the trivial chores and moves towards earning money via “jobs” (e.g., mow lawn, paint, and etc). This means that as he gets older previous chores-for-pay may become general household chores (without pay), and he earns money via real Work. It is at this same time that real budgeting comes into play, and he becomes increasingly responsible for paying for his school lunches, clothing, and etc. I do not expect that all these expenses to come from his own earnings, because these are budgeted household purchases; things that would be purchased on his behalf anyway. The difference is that now he is charge of the expenses, instead of his mother or myself. (Of course we help him with this!)

    Basically, as my child ages and develops my system changes.

    Money for grades:
    I am exploring the idea of bonuses after each semester for a good report card and parent-teacher-student conference. Why? Because I view them as the equivalent of employee reviews. My son is not allowed to work, and subsequently is not afforded any opportunities to earn a bonus or pay raise. I want him to know that his attending school each day is just as important as me going to work. I am still brainstorming on the specifics, but instead of money for specific grades, I will probably look at his overall performance, so the semester conference with the teacher will hold alot of weight.

  22. Rosydoodles says:

    I agree that tying an allowance to grades might not be a good idea. But here in the UK (or at least at my school) we have a clever report card that shows attainment and effort (I think that most schools do). So when I get A for effort in every subject then my parents celebrate with me, even if I only get a B, C, D. This works really well for me :) (though I’ve finished school now so I don’t get it any more.)

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