Budgeting for Kids: Try These 5 Hacks for Allowances

Erin OsterhausJanuary 18, 2023


Cartoon money jars

Teaching kids how to budget from an early age can help set them up for financial success later in life. And one of the most effective ways to teach children about money is to give them a bit to manage for themselves. By instituting an allowance for kids in your home, your little ones can start to learn the basics of savings and budgeting. The earlier they start getting familiar with financial decisions, the better prepared they’ll be to manage their own income and expenses later in life.

Here we’ll go over how to provide an allowance for your kids, no matter your income, as well as how to use said allowance to teach your kids to reach their financial goals and stay on financial track as adults.

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When Should You Start an Allowance?

The exact age experts recommend you start giving your child an allowance varies, but most agree that sooner is better. When your child can count money and has begun to grasp the concept of saving and spending, it’s a good idea to institute an allowance. This usually happens around five years of age, when they start kindergarten.

No matter at what age you decide to start an allowance for your child, you should start with an open and honest talk about why you’re giving it to them. Experts recommend that you be clear about what the allowance is for, that you be consistent in providing it, and that you allow your child control over the money once it’s in their hands.

The main purpose of an allowance—at least from a parent’s perspective—is to teach your kid how to manage money and understand the consequences—both good and bad—that can come with finances. As your child expands their understanding of long-term goals and the impact that financial decisions can have on their future, revisit this conversation. With each year of learning, there will be plenty of opportunity to provide additional guidance and details about managing money.

How Much Should You Give as an Allowance?

Next up: how much to give them and with what frequency. The amount you give them should take into consideration their age and level of responsibility. A 15-year-old will probably have a better understanding of budgeting and more needs than a 5-year-old, and the amount of their allowance should reflect these differences.

A good rule of thumb to follow when defining each child’s allowance amount is to give them $1 per week for each year of their life. In this case, a 5-year-old would receive $5 per week, while a 15-year-old would receive $15 per week.

It’s important to acknowledge that if you don’t have a lot of wiggle room in your own budget to give your kids a weekly allowance, these allowance amounts are not hard and fast rules. Experts emphasize that it’s not the amount, but the conversation you have around money that is the most important learning factor in providing an allowance at all. If you can only afford to give them $1 a week, explain to them the basic reasoning behind that decision—you’re responsible for managing the entire household’s financial health, so you also have to be careful when you spend money. Being transparent with your kids about your own budgeting process can also be a great teaching moment—you don’t have to explain your exact circumstances or financial hardships, but you can share that you are balancing everyone’s needs and being financially responsible.

Hacks for Teaching Budgeting

You might not feel like you’re a personal finance expert yourself, but teaching your kids the basics about income, expenses, and how to plan for future financial goals doesn’t need to be overly complicated. In fact, it might even be fun. Here are a few tips to help you get started:

1. Start the Conversation with Non-Monetary Items

To introduce the idea of budgeting—especially to younger kids—it can be a good idea to use non-monetary, everyday items to introduce the concept of saving. Food is something they consume every day, and that you use money to acquire. You can explain that if you already have a certain type of food at home, you don’t need to buy more at the store. Instead, you can save that money for next week, or use it to purchase another item you may need or want.

2. Don’t Tie Allowance to Chores

Some parents may make their kids “work” to earn their allowance by doing household chores. While you know what’s best for you and your family, some experts argue that this may not always be the best approach. Kids should do chores because they’re contributing members of the family, not just because they’re paid to do so. And if you tie an allowance to chores, your children may decide to stop doing chores once they feel they have enough money. Instead, consider giving them a consistent allowance, and rewarding chores with non-monetary things like TV time or extra trips to the park.

3. Define A Need vs. A Want

Defining these two categories is essential if the budgeting process is going to be effective. Helping your child understand that a need is something that you can’t live without—like food or water—while a want is something that you could live without—like that cute stuffed animal they just saw at the store—is a crucial step toward setting financial priorities in their adult life.

4. Find the Right Method

After you’ve established what a need is versus a want, it’s time to find a good budgeting structure.

Parents have found some success with the Three Jar Method. You’ll start with three glass jars: one labeled saving, one labeled spending, and one labeled giving. Each time your kid receives money, help them divide the cash into the three jars.

Teach them what the three jars are for and encourage them to use the money only for its intended purpose. Once they understand what each jar is for, work with them to determine how much money should go in each jar.

For kids who are a bit older, you might try the 50/30/20 method. Popular with adults and kids alike, this method clearly outlines how to divide spending categories:

  • 50% Needs: This includes all the things you can’t live without. For instance, housing, food, transportation, basic utilities, medication, etc.
  • 30% Wants: These are the things you could potentially live without, although life would be less fun.
  • 20% Savings: This is the bucket that will help your child learn the discipline to save for future goals, whether that be a new video game in a couple months, or their retirement later in life.

5. Open a Savings Account

As they master foundational skills and budgeting becomes easier, you can introduce new ideas like banking and investing. Finding a fee-free savings account to start their own bank account is a great step toward more complex ideas. A deposit account can help them get even more comfortable with saving as a habit.

Be Patient and Have Fun

Teaching young minds the basics of money management may feel overwhelming at times, but it’s well worth the effort. By teaching them how to budget and save for long-term goals at a young age, you can prepare them to have a more stable and successful financial future.

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Erin Osterhaus

Erin is a personal finance writer based in Austin, Texas. Her work has been featured on TechRepublic, Yahoo Small Business, and Entrepreneur.com. She’s been passionate about helping others manage their money since she successfully paid off $60,000 in student loans in four years. When she’s not writing, Erin loves reading, studying languages, and spending time with her family.