How allowances teach your kids about money
Allowances are one of the earliest – and simplest – ways kids learn about money. They are an opportunity to help our kids develop healthy and positive financial habits. Many of us received an allowance when we were young, and have memories of taking our precious quarters to the corner store for a pack of gum or 5-cent candies.

As a parent, you don’t need to overthink allowances. The overarching goal of an allowance is to give your child a tool with which to practice a lifelong skill. And just like with any new skill, learning takes practice, trial and error, and discipline. There will be moments of joy, frustration, and maybe even a few tears!

Here is the system we used to get our kids started with their allowances:

  • We started paying our kids an allowance when they turned six. They were paid $1/week times their age (so our six-year-olds received $6/week). They received a $1 raise per week on their birthdays until their 16th birthdays.
  • We opened a savings account, and did so at the bank with them. They didn’t necessarily need to understand how to open an account, but we wanted them to know what it was like going into a bank to deal with people who looked after their money (although the era of physical branches may soon be coming to an end!).
  • We let our kids pick out piggy banks and jars into which they could put their allowance and see their money grow.
  • As popular as tapping, swiping and e-transferring are, we made sure to give our kids cash in hand on the same day, every time (no payday loans!). That way, when they went to buy something, they had that tactile sense of handing over money to someone – an important step in connecting earning with spending (and one we can easily forget as adults).

Spending, saving and giving

As a parent, your role is to help teach your kids what to do with this new tool. We started by setting up a few rules for spending, saving and giving:

Spending

  • They could spend their pocket money any way they want (except on items we deemed inappropriate).
  • I didn’t question their choices, and I actually wanted them to make some mistakes so we could talk about their disappointments.

Saving

Here is where our system might look a little different – and more complicated – than other systems. But in the long run, it helped teach our kids about patience and delayed gratification:

  • We gave them cash in hand every two weeks only.
  • Every other week, we would put the allowance into their savings account, and made sure to show them the balance.

In order to spend the money in their bank account, they had to identify something of significance they wanted to buy. As much as they liked buying smaller items, they also often had their sights on bigger purchases.

The catch was the item had to be on their list for at least one month. We would cut out a picture of the item and stick it on the fridge next to their name. Even if they had saved up the money, they had to wait.

As difficult as it was to hear them plead and cajole to relax the rules, I noticed their initial excitement over some wishes waned. This cut down on impulse buys and daily changes in their savings goals.

You might argue that we were taking away the opportunity for them to learn how to save by using a “pay yourself first” program. However, many of us use the “pay yourself first” approach – through the likes of paycheque deductions and automatic transfers to RRSPs – to help instill that discipline we often lack, even as adults. My kids had the opportunity to see their savings grow both in their piggybanks and in their savings account: one was completely within their control, and one was under our guidance.

Charitable giving

As holidays and birthdays neared, we would start talking to the kids about charitable giving. Every Christmas, for example, we supported a family in need that our school had adopted. I would let my kids decide how much they wanted to contribute, as we believed that giving should be a choice like spending. Together, with their cash in hand, we would go to the store and pick out the items for the family.

Although I didn’t force my kids to buy birthday gifts for each other, I did suggest they could buy something as inexpensive as a pack of cards or small toy to celebrate the occasion, which they usually did.

Make allowances a positive experience

Whether at school or at home, as parents we want our children’s learning experiences to be positive ones. Money should be discussed openly and honestly, and should never be used as a punishment or bribe. Although your kids will make mistakes, and may even have a meltdown a time or two, you ultimately want to set them up for success down the road.

On a final note: be aware of how you talk about money in your home. Remember, your kids are listening! And always know you can adjust as you go along: there’s no right way or wrong way to pay your kids an allowance.

Kim Whidden is an award-winning copywriter and content marketer. In her 25 years as a marketing professional, she has worked in communications roles in high-tech, healthcare and higher education. As a consultant, she has been the lead copywriter on website development teams, written and edited countless web pages, and has developed successful email campaigns. She was drawn to writing and marketing from a young age, and would often TV commercials and leave the room when the show came on. Kim lives and works in Surrey, BC and the Okanagan, and is the mom to four teens.

Kim Whidden is a paid spokesperson of Sonnet Insurance.

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