Financial Planning | September 5, 2017

The Allowance Conundrum: Strategies to Help Teach Kids the Value of Money

by  Kelli A. Adams, GW & WADE COUNSELOR

Are you contemplating or currently giving your children an allowance? You're not alone. In fact, roughly seven in 10 parents give their children an allowance[i]. For many parents, teaching children the value of money by using an allowance can be quite challenging.

For this post, we interviewed GW & Wade Counselor Kelli A. Adams, CFP®, EA. Having three young children herself, Adams was excited to share with us her own experience and approach in implementing an allowance program. One that she believes is having a positive impact on her children.

“All parents want what’s best for their children, including for them to grow to be independent, healthy, happy and financially successful adults,” said Adams. “The first step is helping your children understand the value of money. Once they understand how hard it is to earn it, they’ll have a higher regard for money and treat it more respectfully, and also be more likely to appreciate all of the things that you do for them.”

Allowance Program Example

“The key to starting any allowance program is to make sure that your kids are involved in its development, that there is criteria that needs to be met before handing over the allowance, and that the program is sustainable with little oversight by the parent,” said Adams. “I’ve seen many allowance programs fall apart because the parent is too hands-on, and ultimately the process wears on them, and the program simply fades and eventually ends.”

Adams’ children are 6, 8 and 11 years old. For her household allowance program, she maintains a simple chore chart that is posted on the refrigerator. Her criteria include:

  • Take out trash twice.
  • Unload dishwasher twice.
  • Clean the bathroom once.

Once her child completes a task, they sign the “date” column associated with the specific chore. Adams, then checks the chore quality and initials that it’s complete. Once one of her children complete all five tasks, they receive $5.

Originally, the program was established to be weekly, but it ended up being too time-consuming and Adams changed it to more of a “rolling” chore list. However, until her children individually complete all five tasks, they’re not paid. The last step is for her child to sign off on the chart that he or she has been paid. And then the list starts all over again, said Adams.

What’s the Average Allowance?

According to an American Institute of CPAs survey[ii], children are spending an average of approximately six hours a week on chores to earn their allowance. The average hourly rate of “pay” comes out to $4.43 an hour, which is a nice sixteen percent raise from the $3.82 they were making in 2012.

Steps after Receiving the Allowance

Once Adams’ children receive their allowance, they’re required to place $2 in a savings piggy bank, another $2 in a spending piggy bank and the final $1 in a charitable giving piggy bank. They then talk about their goals in relation to their savings, appropriate uses of spending money, and finally, how her children want to make a positive impact on the world using his or her charitable savings.

“I look at my children’s chores as if it’s their first job,” said Adams. “In life, if you don’t do your job, you don’t get paid. The most direct way to help a child understand the value of money is to make them work and pay for their own personal items.”

How to Pay the Allowance

While there is no one right way to define an allowance program, many parents prefer paying per chore. MarketWatch[iii] provides a handy chart for aligning a pay rate to a corresponding chore. For example, average pay for mowing the lawn is $6.28, cleaning the garage is $5.20 and doing the laundry is $2.82.

The Value of Having Children Pay their Own Way

As a simple example, Adams’ children wanted to go out to dinner one evening. Adams said no, that it wasn’t in the planned budget for the week. However, she and her husband agreed that if the three kids wanted to pay for the meal, then they could all go. Initially, there was some resistance. Two of her children were completely on board with the idea, but one wasn’t. However, she didn’t allow just two to pay; rather, it was all three pay or we stay home.

They ended up going out for dinner and the three kids paid. Adams and her husband shared a meal. When asked why, they explained that they were trying to help by keeping the cost of their meals low. One of her children ordered a fancy fruit drink, and later regretted it, once he saw the impact he’d made on the final bill.

“I can’t think of a more effective way to teach kids the value of money than to have them pay for their own things,” said Adams. “As an alternative, you could share the expense. Making sure that your child has some skin in the game helps them grow to be financially responsible adults.”

Best Age to Start Giving Allowances

“Once your child can start helping out around the house, it’s time to initiate an allowance program,” said Adams. “Kindergarten is an ideal time. Children become more independent, simply by taking on more responsibility with school work and teacher expectations. Also, your children will start to meet other children, some will come to school with a lot of possessions. It’s the perfect time to start talking with your child about what’s involved in obtaining these possessions. Without ongoing financial conversations with your children, that expand as they grow, it would be unfair to expect them to understand money or be responsible with it, since they were never taught the value of money.”

The National CPA Financial Literacy Commission offers these tips for parents when establishing an allowance program:

  1. Set parameters – Make sure your children clearly understand why they’re getting it, how to earn it and how to lose it.
  2. Set goals – Rather than give your child money to spend at will, try an allocation process that rewards a focus on short and long-term goals.
  3. Talk often – The more you engage your children in financial discussion, the more likely they are to learn lessons and make good money management part of their daily life as they get older.

Recently, Adams increased her 11-year-old’s allowance to $8 per five chores.

“He’s getting older,” said Adams. “He can begin to understand conversations regarding investing. In fact, we’re looking at what he has in his savings, separate from college, and taking half of it and opening up an investment account. He and I together will select the stocks, ETFs and mutual funds he’ll invest in. To effectively teach your child the value of money, ultimately it helps them to see the daily changes of the financial marketplace and how it impacts their finances.”

In Closing

One of the greatest gifts we can give our children is to teach them the value of money and the importance that it plays in helping them to lead independent and healthy lives. At GW & Wade, we believe the key to becoming a successful investor is to start early in life. Quite often, many of the most financially secure investors today have parents who instilled upon them as a child to work hard, save money, give back to your community, and have fun along the way.

If you have questions regarding your financial future or overall wealth management and long-term financial plan, please do not hesitate to contact us.

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The information provided above is general in nature and is not intended to represent specific investment or professional advice.  Any results cited do not necessarily represent the experience of other GW & Wade clients.  No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.  

Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:

Laurie Gerber, Client Development

GW & Wade, LLC

T. 781-239-1188





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