All About Allowances

Just how do you teach a kid to avoid overspending? Everything costs so much that it's hard not to overspend ourselves – usually it takes several, sometimes painful years to learn to live beneath our means in order to make it happen. And this is while we're earning a reasonable salary that should cover expenses!

If a child wants designer running shoes, just how is a paper route going to cover that cost? Well, hopefully by the time they want those shoes they will be coming to grips with the fact that we can't always have what we want without tradeoffs. Providing kids with an allowance seems to be part of that education effort.


See also:
Adult Children Living in the Basement.
Teaching Kids About Money.

Personally, I'm not 100 per cent sure what to think of allowances. My parents did a pretty good job of trying to teach us about saving money – cost-sharing arrangements where they'd match us dollar for dollar if we saved for something we wanted stand out most in my mind – but at a dollar a week, our allowances really weren't good for much more than extraneous spending.

The more I think about it though, the more I realize that small allowance's value, I think: It bought candy, sure, but it allowed them to teach us other lessons as well. If the family went out for dinner we were each given the same amount and allowed to order what we wanted off the menu. If we ordered less, we got to keep the change. If we wanted more, we needed to supplement the amount given to us using our own money, which probably came from that allowance.

Anyway, other people, meanwhile, seemed to earn much larger allowances than the dollar a week we collected. I don't recall if they had any strings attached to the amount they received.

Some people say allowance should be tied to housework. Other say housework should be separate, that it's something the child does because they are a member of the household, not because they are being paid to do it. (Though those who subscribe to that line of thinking say it's still fair game to offer monetary compensation in exchange for additional chores that fall outside of the child's normal responsibilities.)

There really doesn't seem to be a right or wrong answer, only matters of opinion and personal style.

Susan Beacham, founder and CEO of Money Savvy Generation seems to have a pretty good take on allowances: She recommends allowances start by the time kids reach middle school (grades 3, 4 and 5).

"They should absolutely have an allowance that covers their expenses, which means you need to sit down and say lets figure out how much you need each month," she says. "If I've been paying for toiletries all along, now let's figure what's reasonable to cover that. I'm going to give it to you at the beginning of each month and it's really up to you to cover that cost.

"The first couple of months they'll spend it within the first week and then need to learn to live the rest of the month short on cash for basic needs. Allowance is not for wants, it's for needs," she adds.

Her recommendations?

• Draft an allowance contract and put in writing what the child is expected to cover for themselves each month.
• Allowance should never be so much that children are discouraged from working.
• In the lead up to college, start cutting off the dough. (Let them know well in advance that this will be happening!)

"Parents have to get over controlling a child through money. That's hard," she says. "If we don't want them in the basement (though), we can't have it both ways. We have to give them control. The sooner we do that, the more likely they are to take the reins. If we do it (cut them off) when it's provocative, like at the beginning of college (when they crave independence anyway), they'll take the reins more willingly and roll with it. That gives both of you more time to make some mistakes, make corrections and learn."


Related articles:
Adult Children Living in the Basement.
Teaching Kids About Money.


Kate McCaffery is a freelance writer in Toronto, Ontario. Visit mccaffery.ca/kate2.0/ for more information.