It’s Allowance Day: How to Raise Money Smart Kids

It's Allowance Day - Child counting out coins on the table in front of him

Written by Lisa Ellen Bean

Lisa is a co-founder at Empowered 4 Growth, an ICF certified coach and a mom to two boys aged 10 and 8. She blogs to share her journey of learning about raising strong, resilient, and confident children in the 21st century. You can reach Lisa by email at

October 7, 2020

Learning about money should be an important part of growing up. Money skills are not only important life skills they are also a bridge to many other critical 21st century skills such as: confidence; self-drive and motivation; and, creative and critical thinking.

Experiences with money can provide kids with a certain amount of autonomy and freedom — and it’s flexible enough that parents can dole out additional responsibility and freedom with age and maturity.

As a result, kids learn important life lessons through natural consequences.

  • Lose the $20 bill? That sucks — we’ve all been there.
  • Need to balance the in-the-moment impulses so that you can finally get that big thing you’ve wanted? Let’s create a plan!
  • Need more money to purchase that Xbox you want so badly? OK — what creative ideas can you come up with to earn more?
  • Want to make a big change in the world? Money is probably going to play a part.

Offering experiences with money when your kids are at a young age is a great place to start offering up real-world learning. I believe that offering kids an allowance is an easy and impactful place to start.

Learning about money should be an important part of growing up. Money skills are not only important life skills they are also a bridge for many other critical 21st century skills.

A Weekly Allowance

Each week our two boys get an allowance.

We’ve chosen to give them this experience of managing money with no strings attached. This means that they don’t have to do anything in order to ‘earn’ this money.

That doesn’t mean that they aren’t expected to chip in around the house and do their part, but we do not attach allowance to it.

There is a reason for this — just as I expect my kids to be positive members of society (e.g. clean up the garbage in the school playground) without getting paid, I expect this of them in our house as well. So, it was our conscious decision not to tie money to those things.

However, if they go above and beyond to do a big job — something that we might pay someone to do anyway, then it is possible for them to earn extra money. And, we absolutely encourage their entrepreneurial spirit in finding other ways to earn money!

If your kids are interested in making money by starting a business check out our recent blog on Kids’ Business Idea: Choosing the Right Business for Your Kid.


How Much Allowance?

According to Sarah Phillips, the founder of the 4 Pocket Allowance system, there is no right or wrong answer to this question. You do, however, want to take into account things such as: what you expect your kids to cover with their allowance, their age, and your family income.

In our house, we decided to give each of our kids an allowance of $1 for each year of age. From there we split it into the following categories:

  • 50% is available for spending (maximum)
  • 25% is for savings (minimum)
  • 25% is for giving (minimum)

Let’s break it down!

Spending Money

We give them absolute, full discretion over how they spend this money; as long as they follow other family rules (e.g. you may have a rule around how much sugar is consumed daily).

This sounds so simple but it is deceptively hard. I logically know that, in order for them to get the best real world learning out of this, I have to let go of controlling their decisions, but be ready for your own personal money-demons to rear their heads.

My husband and I both have a very hard time when we see them spending what feels like significant sums of money on what we perceive as junk – things  that won’t be played with, will be broken by tomorrow, or where they are just getting sucked in by kid focussed marketing.

Earlier this week my son, who had not bought anything for a while, asked if I could take him to the candy store. Garrett Stock holding a sucker purchased with his allowance. He bought $42 worth of candy, and I let him do it!!

I did, however, point out later that this was 10 weeks’ worth of allowance, but I tried to do it in a “hey, did you know?” kind of way. He will connect the dots later when he runs out of this candy, likely in much less than 10 weeks, and the next time he wants to purchase something comes around and he doesn’t have any money left.

With their spend money they are learning about: budgeting, the value of money, impulse purchases, math, and interacting with adults in making purchases to name just a few things.

In order to preserve their learning, we agree not to interfere with their decisions (but we may take this as an opportunity to have “teachable” conversations), we will not loan them money to be paid back later, and we will not buy things for them that we have agreed are to be covered by their allowance.

Saving Money

Their savings are intended for the long term. In kid years, this means the very long-term; maybe the purchase of a first car, to help with education, or even a down payment on their first home.

When we first started giving the kids an allowance, we also took them to open their first bank account, and every month or so we’ll take them to the bank to deposit their savings. Each time they get more used to dealing with the bank, checking their balance, and considering their future.

This year, with our 9-year old, we’ve gone to the next stage and opened an investment account, explaining what the stock market is and having him consider this as an option for his savings.

Giving Money

Imparting altruistic values, encouraging kids to make positive change in the world, and instilling gratefulness are important to a lot of families. By having our kids consider where they can make a difference in the world with their money, we’re letting their personalities and passions shine through in their choices.

At the beginning of 2020, my youngest was incredibly passionate about the pain that animals were experiencing during the Australian wildfires, and he decided to make his contribution to that cause. I look forward to continuing this, to encouraging them to research their cause of choice and to decide how both their money and time can be used as part of a solution to real-world problems.

Extra Money

Inevitably kids get extra money, for birthday or holidays, or their own personal earnings and entrepreneurial activities. They make the conscious choice about which category this money will go.

I find it interesting that my oldest son always opts for the spend jar, and my youngest almost always opts for the save jar. That, in itself, tells me a lot about their personalities!

I love the experience that my kids are getting and how their money and life skills are developing. They get all that autonomy, but it’s still a relatively safe and inexpensive experience for them.

We are lucky that we have a crafty grandmother who has made us a stylish piggy bank like jar system, but I noticed when we were starting this that it’s hard to find a good off-the-shelf solution.

Since then I’ve come across several helpful tools, including the 4 Pocket Allowance system. 4 Pocket Allowance System KitIt’s a convenient, done for you system that allows you and your kids to divide the money up between saving, spending, giving, and investing; plus a ton of free resources and help to raise money savvy kids.

Whether you DIY or use a ready made system, you will not regret the experience that an allowance will give to your kids. For even more suggestions on how to teach your kids about money check out our blog post on Money Smart Kids: 6 Ways to Teach Your Kids About Money.


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