The Importance of Allowance

March 18, 2013 by

If you are a parent, and even if you do not read anything else written by me or on teaching money management to kids, please at least read this.

The most important lesson you can give your child on money management is through their allowance. The allowance is to be used as a TEACHING TOOL.  Five year olds are old enough to receive their first allowance, and they are at a perfect age to start learning about money as they do not have any money management habits. They are like fresh clay that you can mold and teach any way you want to. In addition, the earlier you start them off on a right path, the better it is. Proper money management habits will become ingrained and will become part of who they are as they become adults.  However, there is one caveat to keep in mind - you as a parent need to set an example on money management and lead by example.

Image courtesy of stockimages /

Image courtesy of stockimages /

The kids watch your every move and they learn by observation. You will have to walk the walk. This does not mean that you will have to become a scrooge. Your role will be to help your child understand that money is there to pay the bills and save, but also to be enjoyed, as well as shared with less fortunate.  I really hope that you teach your child balanced approach to money.

I want to stress again that allowance is a teaching tool not a privilege for a child.  The idea behind allowance is that it gives a child an opportunity to manage money and make mistakes while the stakes are small, and learn from those mistakes.  Your role as a parent is to oversee the management of money by the child and advise them, but ultimately giving the child enough freedom and independence to make their own decisions what to do with their allowance.

Money management is an important life skill and if it is taught properly, it will stick in the adulthood.  Ask yourself – Who taught you about money management as you were growing up? If you were lucky enough that you had someone teach you, you are in minority. Most people respond to this question that they taught themselves. Teaching about money management is important and it can be evidenced by John D. Rockefeller Jr. (one of the wealthiest man of his times) teaching his son John III financial lessons by use of allowance. For details on the allowance contract with his son, please see Smithsonian magazine.

More on allowance coming up in the next blog.


  1. Aliya

    My daughter in grade 2 has been asking me for an allowance lately (as I guess other kids in her class mention that they get an allowance). She wants me to "pay" her to clean her room etc. However I dont agree as I feel she should do chores without being "paid" for them. So how can I give her an allowance, as I want her to learn the value of money but also learn the value of doing chores without payment!!

    How much would be reasonable for a child in grade 2?

    How young would you recommend giving a child allowance?

  2. Maja

    Hi Aliya,

    Thanks for your comment and the questions. You are ahead of me as my next blog on the allowance is supposed to discuss issues that you addressed in your questions. Please check back in a day, and let me know if you have any comments/further questions.

  3. Pam at MoneyTrail

    Allowance is a great teaching tool. I like the fact that you emphasized the parents' role in being a good role model as well. Just handing them $5 each week won't teach them good financial habits. There has to be an open discussion (age appropriate of course) to go along with the allowance. Guiding them through spending and saving choices and then allowing them to live with the consequences of their decisions will help kids practice money management skills.

    • Katrina

      I disagree with some of you on #4. Children shluod be paid for chores (work) around the house because it teaches them the value of hard work and getting paid for it. There are very few free things in the world and that's great way to instill this value. However, I don't believe children shluod receive an allowance without doing any work. Some children receive a weekly allowance just because and that teaches them the value of entitlement. That they're entitled to an allowance because they were born or because their friends get an allowance, etc. Children become spoiled because of that.Another point, children who don't receive wages or an allowance still get paid by their parents when they buy things for them (clothes, school supplies, etc.). Why not give them wages for chores and let them manage their own money. If they don't have enough, they can't buy it. What better way is there to teach the values of personal responsibility with money.

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