Kid Allowance Do's and Don'ts

Home » Kid Allowance Do's and Don'ts

Putting your child on an allowance is a critical step towards their eventual financial independence. It’s important to keep this future goal in mind when devising an allowance strategy. The idea is for our kids to already have some money handling skills before they leave for college and beyond. Once they are out of the house, you lose power and insight into what they are doing with their money and the ability to help. Here are some do’s and don’ts of allowances:


  1. Use an allowance as a control or discipline device. A well-devised allowance plan is just the opposite of control. The allowance should allow your child the freedom to make some of their own choices and exert some independence. Remember, we’re training our kids to be responsible adults, not enforcing our will upon them.
  2. Play “good parent, bad parent”. Make sure the guidelines of what your child is responsible for, like clothes and gas, are clearly established and adhered to by both parents. Healthy spending habits will not burgeon if all your child needs to do when they want extra cash is go see Dad.
  3. Tie an allowance to chores or duties. This is a controversial one, but I’m going with it anyway. Everybody in the household has duties they should be expected to complete. Money has little to do with the roles family members play to support one another. Think of an allowance is an extension of the financial support we already provide to our children.


  1. Have your child create a budget. Before handing over funds, ask your kid to make up a list of what they need money for and how much. I will almost guarantee they will grossly undershoot their actual need because they do not have a clue what things cost. Work with them to come up with realistic numbers and use their budget as a guide for their initial allowance amount. Periodically, get together with your child and make adjustments as necessary.
  2. Hold the line. If the agreement is for them to buy their own clothes, resist bailing them out if they initially blow all of their money on movies and dinners with friends. Provide your child with the opportunity to feel the consequences of their spending decisions. It’s better for them to learn about these consequences now instead of later, when you’re not around to provide guidance and support.
  3. Have your child set up a checking and savings account. Instead of just handing over cash, go ahead and help your kid learn about banking. I would suggest both a checking and savings account. Teach them to use the checking account for regular monthly expenditures like gas, and to use their savings account for periodic purchases, like clothes and car repairs.

I hope these tips help and encourage you to set up an effective allowance program for your children. Often I meet with my clients children at critical stages, like when they start to drive, go off to college, or start their first job. It’s astounding to me how easily kids pick up great money habits when we approach their training with the right attitude and these guidelines in mind.  If your kid can establish sound money handling habits early on, it will drastically improve their prospects for a financially sound future.