A guide to paying allowance to your kids

As a a parent, it's an important (but daunting) task to teach your kids about personal finance. And paying your kids a regular allowance is an important arrow in this quiver.

As with most things in life, the devil is in the details. Here's what I do in my family - feel free (or not!) to implement this in your own house. Every family is different of course!

1. When should I start paying allowance?
In my experience raising two very different kids, both of them started getting curious about money around age 6 so that's when I started paying them an allowance. At this point they start to understand that you can use money to buy things, and that money is a limited resource that their parents aren't always that keen on depleting.

2. How much should I pay? How often?
The formula that I've used is the following: "Pay your age (in USD) every two weeks". So if your child is 8, then it's 8 dollars every 2 weeks. Pretty simple. I like this approach because it is a good analog for making a salary in the "real world" - it's every other week, which is a common salary cadence, and it goes up over time with experience, as salaries tend to as well.

3. When should I pay or not pay?
Some parents have a set of chores that must be completed for kids to earn their allowance. I personally don't like the word "chores" as it sounds punitive. We use the term "household contributions" which my daughter thinks is a euphemism (although she doesn't know what that word means yet...). I almost always will pay out allowance. To have an allowance skipped, my kids need to do some serious transgressing. I think of allowance as a "base salary", and then I will periodically offer a "bonus" if they do something truly helpful or difficult.

4. How should I pay? Do I need to keep that much cash around? Where can my kids safely keep their money?
The "traditional" (and, IMHO outdated!) approach to paying allowance, of course, is to give kids cash and then they put it into their Piggy Bank. If you're like me, you don't really use cash for anything any more, and in fact the idea of needing to pay for something (including allowance) in cash makes me cringe.  We think that Piggy Banks are the wrong way to teach your kids about money and personal finance. So while we are of course entirely biased, we think setting up and using a Parent Bank account is a great way to pay allowance. You can pay automatically and you don't need to worry about having cash on hand.
One more note - I personally think of allowance as not just a "reward" for behavior, but also as a source of funding to learn about spending. So I give them enough money so that I can also ask them to contribute for more than perhaps is common (such as an activity with friends or new clothes or toys). We provide "the basics" of food (healthy food that is, not snacks), housing and education, but I want my kids to participate in and practice the exercise of balancing cost and benefit when deciding to make a purchase. Sometimes I'll offer to "split it" with them, so they don't have to cover the full cost (say for some clothes that they want but don't really need), so that they at least feel some of the "pain" that's involved in making a purchase.

Of course, this is just one perspective. There are more perspectives others out there that are worth considering!

- Matt, founder of The Parent Bank