How To Deal With Kid’s Allowance?

Those who study financial literacy generally agree that many, if not most, consumers lack the financial literacy necessary to make important financial decisions in their own best interests (Perry 2008; Braunstein & Welch 2002).

Children are destined for a financial future that differs little from that of their parents. In many cases, the middle class raise the next generation of middle class people, the poor raise the poor and the wealthy raise the wealthy. Very few children move up the ladder from their parents, while sliding down is as simple as swiping a credit card. Rags to riches to rags in three generations is a frequent occurrence
Only parents have the capacity of breaking the circle by teaching their children good financial habits at an early age. And one of the most important financial lessons a child can get is related to dealing with an allowance.

Here are 5 bits of advice on how to deal with a kid’s Allowance:

Keep it tangible

Kids today are living in a world of financial abstraction, a world where money is largely an illusion with very real consequences. And the earlier they start the money handling process, the better. Give them tangible cash, before they are entrusted with debit and credit cards, apple pay, google wallet, bitcoin or whatever the newest payment craze will be.

Settle on a realistic amount

Simply $1 (or £ sterling or Euro) per year of age per week. So a 7 year old gets $7/wk and a 12 year old $12. The logic behind it is, the older they get the more they will be involved in after school events with friends, so having a little extra would go to those activities.


The money has to be given on a consistent basis. Parents need to have a regular schedule for the allowance and stick to it. It could be once a week, every two weeks on payday or once a month, whatever works for you as long as it consistent. If the allowance is not, consistent it teaches children that they can’t count on you or on their allowance to plan and save (our money beliefs are learned at a very early age and can set the stage for our financial future)

Motivate toward goals

Talk to your child and find out what they want to buy.

You can discuss holding back only a portion of the allowance toward his/her goal and discuss how this would affect the timetable for the purchase while still giving the child some spending leeway for the meantime. These discussions are valuable lessons in money management and in impulse control.

Parents can use their own saving goals to give examples, thereby generating discussion about family goals and visions as well as day to day living expenses.

Avoid advances on allowance

If you give a child an advance on his allowance, you are teaching him that not having money does not mean he can’t get more. You are teaching him he can buy now and pay later. It is a good way for a child to get into debt and to learn to depend on credit to live beyond his means. In short, you are teaching a bad habit. It is better for him to run short and do without and learn from his shortsightedness.

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