How to Wean Your Kids Off Allowance and Still Help Them Save

allowance for kidsRecall childhood and most of us will remember receiving an allowance from our parents. Who can forget keeping a piggy bank, excitedly filling it coin by coin? Allowances are like a financial rite of passage from adolescence into our adult years, yet it’s easy to overlook that our allowance was like our very first version of a savings account, one of the first steps in growing up.

Giving an allowance can be one of the best ways to teach your child about how to be responsible and cautious with money. According to a recent survey of parents conducted by the American Institute of CPAs, parents are paying an average of $15 per week in allowance for kids (that’s $780 a year) — it’s an important part of a child’s formative years that continues in families today. However, the same study also finds many kids are spending their allowance money faster than they’re earning it.

How to teach kids about money, according to a report by Today Money, depends on a family’s individual views on finances, and how parents handle allotting their kids allowance money. It’s not just about the act of giving an allowance, say experts, but teaching about responsibility and the value of saving money, too. “Success,” says the article, “depends on how parents decide to play the allowance game. Fumble it, experts say, and children can learn all the wrong lessons about money and develop a sense of entitlement.”

Should your children receive an allowance? And how much? Are they working for it? And, most important, at what age should they be weaned off their allowance?

Starting Early

 teach children to saveThe AICPA survey indicated that 61 percent of parents began giving an allowance for kids at 8 years old, yet just 1 percent of those parents said their sons and daughters saved the money — not a good sign if parents want their kids to avoid things like money problems and debt into their adult years.

Even so, when it comes to paying an allowance, the sooner you start, the better. Zillionz founder Dan Henderson, in a 2011 U.S. News & World Report article, said that most children begin showing interest in learning about money around 3 years old, so talking to them about money and starting them on an allowance early can help teach important money lessons.

Henderson says that parents can help their kids dedicate some of their allowance money to spending on small items, a portion to saving for bigger items (like a bicycle) and another portion to long-term savings, children can learn how to manage and budget their money.

In the same U.S. News article, Henderson, with author Alisa T. Weinstein, recommend paying children a weekly or monthly allowance of $1 for every year old their child is. Combining this with regular conversations about their allowance and budgeting, can help children understand, according to Weinstein, “that feeling of working hard for something and now enjoying it.”

Chores for Children 

Many parents believe that an allowance is a handout. By giving their kids chores around the house and paying them, it sets expectations, encourages maturity and teaches children how to earn money and develop a work ethic.

Anne Nicolai of Mexico said that her son Jonathan (who’d been saving his allowance money at a credit union since age 5!) agreed to switch from an allowance to paid chores at age 12. Nicolai said that she expected some select chores, like laundry, dishes or cleaning one’s room, for free, but paid her son for others.

“Anything I would have had to pay some outside service to do, such as mowing the lawn, shoveling snow, cleaning out the gutters, cleaning the pool, or fixing something around the house, those things I paid the going rate for,” she said. The mother and son had no difficulty making the change. “I think it was a good thing for my son to know that he had the power to affect his income and to watch his bank account grow,” she said.

“You can ‘hire’ your child to do these tasks so they are still earning extra income, but it is not something that is automatically paid each week,” Christy Whitman, author of the Enlightened Kid Program, told Go Banking Rates. She said compensation for household work should be simple for parent and child. “They have to complete the task and then get paid. It is not like if you make your bed every day and pick up your room you get X amount. Instead, ‘Do a job and get paid.’ This can help supplement the income for your child.”

The Transition to Independence

money management for kids So when should you stop giving your child an allowance? Leslie Tayne, attorney and financial consultant, says, “When your child is making a sufficient amount of money on his or her own to cover their expenses, it is time to try to wean them off allowance. Children learn to be more responsible with money that he or she earns than money that is given to them.”

Simply put, the teenage years are a good time for kids to transition from allowances to earning their own money through part-time or seasonal jobs.

Nicolai remembers the allowance arrangement she made with her son, now 27.  “At age 16, he took a part-time job at Barnes & Noble, and I still paid him to mow the lawn and shovel snow, since I would have had to hire those tasks out anyway,” she said.

Parents and kids shouldn’t have to worry about choosing between an allowance or none at all. Expert Whitman says that in many cases, a teen’s after-school job might not pay enough money to cover all their expenses. Giving them a reduced allowance during these times is a healthy compromise — one, since they can supplement the rest on their own, and two, as the final “weaning” off their allowance.

Weaning a child off their allowance has no set age or timetable. Like all parts of growing up, it involves a good relationship (and good communication) between parents and their sons and daughters. Establishing these house rules during the high school years sets a good personal finance precedent for college, graduation and adult life ahead. That $5 per week allowance at age 8 could be one of the catalysts to your children’s future money and career success.

Says Tayne: “Explain to them that they are now old enough to begin earning their own money for the things they want and need,” she said. “This is especially important to do before your child moves away for college, as this will provide them with a perspective and understanding on self sufficiency, accountability, financial responsibility and the value of a dollar.”

Photo Credits: Kiddie Academy Family, Womens Forum, The Happy Housewife, Penniless Parenting