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March 03, 2022

Allowances help teach kids savings savvy

Are you a believer in allowances? I know I am.

An allowance helps kids learn that all money — not just yours but theirs as well — is limited and they’ll be a lot better off once they learn to put a little thought into how they use it.

In other words, take the money you already spend on your children and run part of it through them instead, suggests Elisabeth Donati, author of The Ultimate Allowance.

Children tend to be less reckless with their own money, says Donati. Just the act of handing control of spending to them, she says, introduces restraint.

Trouble is, if the amount isn't large enough for kids to experiment with, and to even make mistakes with, it likely won't produce the learning effect you're looking for.

What’s the right amount? 

About $12 a week, according to American Express, whose research suggests that parents are equally divided when it comes to whether the money should be spent or saved.

When parents were asked about their allowance expectations:

  • 23% said they look for kids to spend it as they please
  • 32% use allowance as a reward for good grades or household chores
  • 18% of households give an allowance specifically to be deposited into a savings account
  • 13% hand out an allowance for kids to spend on weekly non-essentials, such as movie tickets or games

How do things work at your house? What did your parents do for you when you were a kid?

By Gordon Powers, MSN Money

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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo), canoe.ca, AOL.ca, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...