Can allowances help kids build smart financial habits?

Around 79% of U.S. parents give their children an allowance, according to the 2022 T. Rowe Price Parents, Kids, and Money Survey.¹ It's clear allowances are popular with American families, and rightfully so. Allowances have benefits when used wisely, but there are also some downsides. As a parent or caregiver, it’s essential to understand both sides of the coin if you're considering giving your child an allowance.  

Here's a look at the benefits of allowances and their potential drawbacks, common reasons for paying kids an allowance, average allowances, and more.   

Reasons for paying kids an allowance 

An allowance is a small amount of money parents give to their kids on a regular basis. Parents might pay their children an allowance for several reasons, including teaching kids about money management or introducing (and emphasizing) the concept of working to earn money.  

In past T. Rowe Price surveys, some parents indicated they paid their child an allowance because their child's friends received one. This suggests there may also be some societal pressure involved for today’s parents to give their kids an allowance.^[1]  

Pros and cons of allowances  

Allowances are a staple in many U.S. households, but giving your kids cash regularly has both benefits and drawbacks. Weighing the pros and cons carefully can help you decide if an allowance makes sense for your family. 

Pros: 

• May encourage financial responsibility, saving, and budgeting skills in kids 

• Helps children understand the value of work if the allowance is tied to chores 

• May motivate kids to help around the house 

• Could help children be more responsible with their belongings if they've used their allowance to purchase them 

Cons: 

• Could make children feel entitled to rewards for all contributions at home 

• An allowance by itself may not teach kids about responsible saving and budgeting 

• Kids might spend the money they earn frivolously 

• Could stretch the household budget, depending on household income and allowance amount 

What's the average kid's allowance? 

Here's a breakdown of the average child's allowance by age, based on numbers from a 2023 study conducted by kids' money management app Greenlight.^[2]  

How to set an allowance for your kids 

If you think an allowance is the right choice for your kids, it's important to consider these factors first: 

• Your family budget 

• Whether the allowance will be tied to chores 

• How often you plan to give your child an allowance 

• What amount you think is reasonable for your child 

The best approach to allowances will differ by family, though many parents give their children an allowance of $1 per year of age. For example, a 10-year-old child might get a $10 allowance per week. You might also decide to give your younger children a smaller weekly allowance because they have fewer expenses than your older children.

How an allowance can help teach your kids about money 

An allowance alone may not teach your kids too much about money, but it could if you also use it along with other teaching tools, like thoughtful conversations. Talk to your child about why you're offering them an allowance, and introduce the concepts of spending and personal savings.

Besides an initial conversation, checking in regularly about good spending and saving habits can help reinforce these concepts for your child. Potential conversation starters could include: 

• What are you saving up for? 

• How are you using your allowance? 

• I'm saving up for an item on my wishlist. Do you want to talk about how? 

• I just donated some money to my favorite charity. Is this something you'd be interested in, too? 

If you tie your child's allowance to chores, it could also help teach them the concept of working to earn money. That way, they'll be familiar with it and potentially more motivated to apply for a first job once they're old enough.

The bottom line 

An allowance alone may not help your child learn about money. Instead of just simply giving them cash each week, take the opportunity to have conversations about saving, spending, and working for those earnings. Thoughtful discussions combined with a weekly allowance will help your child build financial literacy skills they can apply in adulthood.    

1. T. Rowe Price. “2022 Parents, Kids & Money Survey.” 

2. Greenlight. “Average allowance by age for kids and teens.”