5 Strategies for Using an Allowance to Teach Your Teen Money Management Skills

By Miranda Marquit

The point of an allowance is to teach your teen money management. I’ve been giving my son an allowance since he was about six years old. Now he’s 15, and the lessons he’s learned have helped him make better decisions about his finances.

If you hope to teach your teen money lessons with the help of allowance, here are five strategies that can get them on the right track:

1. Consider Using Lump Sums

I give my son a weekly allowance. However, some experts, like Ron Lieber, suggest that you should give out lump sums.

Figure out a budget for things you normally get for your kids, and then hand the money over at once. For example, tote up the cost of back-to-school shopping and give your kids a lump sum and tell them it’s the clothing budget for the entire school year. They are responsible for it.

The idea is that your kids will learn how to budget over longer periods of time and plan ahead for future expenses.

My son’s weekly allowance is basically for him to be able to cover the cost of gas for his car, eating out with his friends, and entertainment. I do use a lump sum for bigger purchase decisions, such as extracurricular activities and clubs, so he can decide which activities he wants to be involved in.

2. Don’t Tie an Allowance to Chores

There has never been a time when I tie allowance to chores. First of all, I don’t get money for cooking dinner or doing the laundry. These are things I do because I’m part of a family. My son knows he’s expected to do certain tasks in the household because that’s just how we live together. It teaches him that some things are done without monetary compensation.

3. Give Your Kids Options for Earning More Money

When it comes to teen money, they always seem to want more. But that doesn’t mean you have to increase the allowance. Instead, teach your kids to make more money. My son is too young to get a job, but there are ways he can earn money. He can do work for my business and receive payment. His 4-H projects yield ribbon money each fall. He is also developing a game that he wants to see if he can sell. From mowing lawns to babysitting the neighbor kids to starting a website, there are ways for teens to earn money — even without a traditional job.

You want to make sure your kids have a big enough allowance to cover the essentials and make some fun choices, but you don’t want to give them so much that there are no consequences to their actions if they spend too much. Let them learn to cut back spending and only spend on what matters to them, or encourage them to find ways to increase their income.

4. Encourage Saving and Giving

Not only is it important to learn teen money management for entertainment and necessities, but it’s also vital for you to help them learn to save and give. My son gives 10% of his allowance to charity and saves another 20% for long-term goals.

Let your teen choose how they want to use this money. My son gives to educational organizations. His long-term 20% is in a custodial investment account. Every six months, we review his portfolio, and he looks to see if he wants to change things up. So far, he has more than $1,000 that can be used to go toward books for college, or for other long-term educational and professional development goals. (Don’t worry: I’ve been contributing to a 529 on his behalf for nearly a decade.)

5. Talk About Teen Money Choices

It’s vital that you talk about teen money choices. My son’s allowance is automatically transferred to his debit card each week. He also has an app that automatically records when he receives income from allowance and transfers his money to giving and saving. Then, he records his other expenses, like gas for the car and what he spends on the vending machine or buying games, manually.

This helps him keep track of what he has. We also sit down and talk about money regularly. Talk to your teen about the consequences of their choices. Let them make mistakes and talk about how they can do better next time.

When my son started driving, I took him to get the oil changed. We talked about the realities and costs of car maintenance, and he saw first-hand that owning a car is about more than just putting gas in it. We talked about how he’ll have responsibility for oil changes and other costs when he is old enough for a job, and how he can designate a portion of his paycheck each week for car maintenance.

As you move forward, help your teen learn money management with an allowance, and then plan to shift more responsibility to them as they get a “real” job later.