The decision whether to grant your children an allowance -- and
how much it should be -- is strictly personal. But if you do choose
to give your kids money on a regular schedule, it's wise to
structure the experience in a way that encourages them to learn
Here are five key lessons an allowance can teach:
1. The value of hard work
According to a
new survey from T. Rowe Price
, nearly half of parents in the U.S. (48 percent) give their
children allowances. Among those, the vast majority (86 percent)
require their kids to earn it in some way -- by doing anything from
tackling chores around the house to maintaining good grades.
But whether they have to walk the dog, take out the trash or
clear the table, requiring kids to perform certain tasks sends the
message that money is rightly earned through hard work.
Also, that hard work is more likely to make them appreciate the
money they earn -- as opposed to money that is merely gifted to
2. How to negotiate
Allowance amounts can vary widely depending on the age of the
child and the preferences of the parent. But if you're a parent who
uses an allowance as a way to encourage hard work in your child,
you can take the lesson one step further by regularly discussing
how much your child thinks they should earn.
This approach opens the door, of course, for your offspring to
hit you up for more money. And you probably won't always agree with
their requests for additional cash to sweep the floors or clean up
But when your children pipe up about getting a larger allowance,
it's shows they're learning about the value of their time and labor
-- and how to persuade other people of its value too. These
negotiating skills can be particularly useful later in life when it
comes time to negotiate their salary.
3. How to make smart spending decisions
Since parents typically take care of their children's basic
needs, kids are usually left to using their allowances for
discretionary spending. And learning about the relative value of
these types of purchases can heighten their awareness of money in
"Anytime the child or parent is spending money, it's a teachable
moment," says Stuart Ritter, a certified financial planner and
family finances expert with T. Rowe Price. "Good spending decisions
start by setting a financial goal. What is the child's money going
to be used for? Without a goal, it's very difficult for kids to
make good decisions, because then it just becomes about what they
want right now."
Ritter says parents can help children prioritize their "wants"
by reminding them of their goals and explaining that
spending money wisely
is about understanding trade-offs.
For instance, Ritter suggests that a parent might say: "I know
you want the baseball cards you see right now in the store, but
what about the video game you've been saving your money for? Are
the cards worth the video game?"
4. The importance of saving
Trevor Bolin, a self-made millionaire and author of "Take Charge
and Change Your Life Today," says that an allowance is a practical
way to help kids learn what happens when you pay yourself
If your child receives a weekly allowance, he or she should
immediately put 10-15 percent into a
that won't be touched," says Bolin. "Or set a milestone for when
money from the account can be used, such as the child's 18th
By then, Bolin says, your children may be so accustomed to
saving that they may not even tap the account then.
5. The power of altruism
When you give a child an allowance, it's also an opportunity to
talk about the full range of financial choices they can make with
their money. Sure, they can spend or save their allowance, but the
money could also be donated to a worthy cause of their choice -- an
option that can be tremendously instructive.
"In my upbringing, my parents taught me to be generous with our
money," says Melissa Cappleman, a certified financial coach. "We
can't act like we have an unlimited supply when we don't, but when
we are in a position to give, we should give big. It's fun!"
Cappelman notes that learning about money isn't only about
"It's time we start to change our nation's culture and ensure we
raise our children with a full awareness of the power of money and
how to use it to benefit ourselves and the people around us,"