It is our responsibility as parents to teach our kids the life skills they’ll need to thrive as adults. Some of the most important skills we can teach them relate to making smart money decisions. One topic that often provokes strong opinions relates to allowance: how much to give, whether to tie it to chores and what it should cover.

To Tie Chores to Allowance or Not?

I recently read a good book that reinforced my beliefs on this topic and introduced a few nuances. The book, “The Opposite of Spoiled” by Ron Lieber, a New York Times columnist, makes the point that allowance is a tool to teach kids how to manage money and not to teach them a strong work ethic, so it should not be tied to chores. Kids will have plenty of other opportunities to learn a solid work ethic (e.g., on sports teams, in school, with part-time jobs) but will not have many opportunities to learn to make smart decisions about money. Kids should still have chores and contribute as a member of the family, but they should not be paid for regular chores (odd jobs are a different story).

How Much to Give?

When determining how much to give, it’s important to consider what you are expecting your children to pay for with their allowance. With younger children, it might be easiest to just give a formulaic amount such as the number of dollars per week that they are old. So, a 7-year old would get $7/week. However, the nuance was that as the children get older and you want to make them responsible for a larger portion of their spending, you might need to deviate from this simple formula and give an amount that should cover what you want them to pay for. So, if you want your son to be able to go to the movies twice a month and eat lunch out once a week with friends, then you should make sure his allowance is enough to cover these activities, at least until he starts having other sources of income. The point is to make it fair based on the lifestyle you want to enable and to increase responsibility for more purchasing decisions over time. By high school, it isn’t unreasonable to put your child in charge of their entire clothing budget, perhaps by giving them a lump sum once or twice a year.

How to Split Between Spend/Save/Give?

The other important recommendation was to split the allowance between Spend, Save and Give buckets and use these to teach your kids the values of saving for the future and generosity to those less fortunate. When kids are young, this money can be placed in clear labeled jars so they can have the visceral experience of seeing and counting their money, but I recently opened three separate online accounts for each of my children now that they are older. The Spend debit account gets funded weekly and the other two are funded monthly. The final nuance was that when the children are young, the parent can determine which percentage of the allowance goes into each bucket, but once they are a bit older, the parent could allow the child to decide and maybe incent them to put some of their money in the Save and Give buckets by matching their contributions or paying interest.

The point of these activities is to impart important money values and habits to our children that will stick with them into adulthood and enable them to make smart money decisions.