In our household, teaching financial responsibility starts at a young age. We believe in providing our children with a structured allowance to help them understand the value of money, budgeting, and the importance of giving back. Here’s how we manage allowances for our kids, and some insights into why we do it this way.

How We Calculate Allowance

We give our kids 50 cents per week for each year of their age. So, for our 8-year-old son, that translates to $4 a week, and for our 10-year-old daughter, it’s $5 a week. To make things simpler, we pay them monthly, rounding the amounts to $18 for our son and $22 for our daughter.

From their monthly allowance, we use the Barefoot Investor approach. The kids have 4 jars Invest, Charity, Splurge and Savings.

Note we added the extra jar invest to the Barefoot Investor approach.

We pay the kids in cash, and they distribute the money into their own jars where they must allocate at least $2.50 each month to each of the following jars:

• Charity Jar: This money is for giving back to the community. Whether it’s donating to a charity, helping the homeless, or contributing to school charity events, this teaches them the importance of generosity and social responsibility.
• Splurge Jar: This is their fun money. Our son often uses this to buy Pokémon or soccer cards, while our daughter enjoys getting bits and bobs from K-Mart. What they both spend most of their money on are their favourite sweets and treats.
• Savings Jar: This is for bigger goals. Our son has previously saved for a cubby house and a Nintendo Switch, while our daughter has saved for a dog and a iPhone. This teaches them the discipline of saving for larger, more expensive items.

The remainder of the money is theirs to allocate as they choose. In the article Kids’ Money Management: Practical Tips for Teaching Financial Literacy and Investment Discipline explains when my kids put money in the invest jar. The invest jar money is used to buy shares to earn dividends. Raising Savvy Investors: A Parent’s Guide to Kids and Money article covers all the details on how I invest my kids money.

Additional Allowance

In addition to their regular allowance, we give them an extra $20 each month. This covers one lunch order a month and any treats or items they might want when we are out. For instance, if we’re on a family outing, they are responsible for buying their own dessert or a drink if they didn’t bring their water bottle. The beauty of this system is that it stops the constant requests for treats or extras, as they understand they need to budget their money.

This allowance system helps our children learn the value of money, the importance of saving, and the joy of giving. It also teaches them to budget for their wants and needs, preparing them for financial independence in the future. By involving them in decisions about their money, we empower them to make wise choices and understand the consequences of their spending habits.

Implementing an allowance system tailored to your family’s needs can be a rewarding experience, fostering financial literacy and responsibility in your children from a young age. It’s better for them to make mistakes with little money than with large amounts of money when they are older.

How do you handle allowances in your family? Share your strategies and experiences in the comments below!

Frequently Asked Questions

What amount should I give my kids?

The amount of allowance is really up to you and what you expect your kids to pay for. Some recommend $1 per year of their age per week. For our family, 50 cents per week per year of age works well. This meets their needs, especially with the additional $20 each month and the generous gifts they receive from our extended family.