Children’s Allowance is a Teaching Tool

I’m a big fan of allowances – my children started receiving allowances at a young age.   The specific reason was unique to my personal situation – after I got divorced, I wanted the kids to have their own money to buy birthday/holiday gifts for me and for their dad.  (In other words, I didn’t want him to give them money to buy me a gift, or vice versa).   The youngest was just 4, and in retrospect, I’d say that was a little young – it took a year or two before she really caught on.  But the early start did no harm, and both of my children learned to think carefully about spending because they had money to practice with.

That idea of practice is the key to why most experts recommend allowances for children.  We don’t put young adults behind the wheel of a car without plenty of supervised practice first.  Likewise, it’s not realistic to expect young adults to make smart financial choices unless they have had plenty of practice managing money.  Managing an allowance helps children build essential skills: thinking about priorities; planning ahead; and recognizing the benefits of saving.

How did we handle allowances at my house? Each child had 4 envelopes:  Save, Church, Gifts, and Spend.  There were rules about how much of their base allowance should go in the first three envelopes (the specific amount changed over time as their allowances increased).  The “Save” envelope was designated to their bank account for college savings; if they wanted to save money for a special toy or book, we would create an extra envelope for that goal.

Looking back, I can say our system worked well.  It wasn’t perfect, mainly because I had a lot of trouble remembering to have the right kind of cash on hand – or any cash at all. For my sake, therefore, we shifted to a monthly allowance instead of a weekly allowance.  For young children I think a weekly allowance is better, but I just couldn’t keep the cash coming on schedule.  (It took lots of one-dollar bills to divide the allowances into the right envelopes.)

Why am I glad I started giving them an allowance? Naturally, I’m very pleased that they have learned to take money seriously and to think ahead.  That’s the BIG benefit.  And I loved the gifts they bought for me (and also for their dad) – I liked seeing them work together to seek out thoughtful inexpensive things (they had only small amounts of money to work with).  One memorable gift was a tube of lotion chosen because the label/logo included the Norwegian flag; another was a pair of wool socks (“I knew they would be good, because they’re wool,” she said at age 6).

But my very favorite part about my children having an allowance? When I could say to them:  “That’s not something I’m going to spend my money on, but you can spend your money on it if you want to.”

– Barb

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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One thought on “Children’s Allowance is a Teaching Tool

  1. Barb –

    I love giving my children an allowance! And it is mainly for the same reason as your final statement – it stops the whining for items quickly. I am surprised at how many times something they “really” want me to spend my money on seems not quite so important when it means parting with their own money.

    I found using the envelopes didn’t quite work so well for me because of not consistently remembering to add cash to them. What has worked is opening checking & savings accounts for them at my bank and having money moved automatically from my account to theirs. They are free to use their checking account as they please and have a debit card they can use with a pin number to access cash. They have to have a conversation with their dad and me if they want to access money in their savings account. We all have the ability to see their accounts online.

    My friends that don’t give their children an allowance because they believe they would just spend it all in frivolous ways are missing an important teaching opportunity with their children! It is much easier to learn these lessons as a youth than as an adult!

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