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The Problem with Kids’ Allowances (And What to Do Instead)

Why "earning opportunities" might be the best way to set your child up for financial success.

By Chad Willardson, CFF

(The following is adapted from Smart, Not Spoiled.)

Do your kids get an allowance? If so, how much do they get? If you really want your kids to be smart and not spoiled, it might be time to rethink the decision to give them an allowance.

You might see this as unorthodox, but as a professional financial advisor, I don’t give my kids allowances.

Chad Willardson

Chad Willardson

When they first asked about it, I explained that money is something to be earned. It didn’t feel right giving them money just for existing. What are we teaching kids if they just get a set amount of money every week because it’s Saturday? It feels like this promotes some level of complacency and dependency, even entitlement. However, if they see the correlation between specific effort and commensurate earning, they will build the mindset required to be a successful, independent adult.

You can help kids better understand the value of money while training them to contribute meaningfully to both the household and their future workplace. For our kids, we created a system that empowers them to set their own money goals and incentivizes not just hard work, but also leadership. Once we explained their opportunities to earn, our kids were on board.

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Create a Menu of Earning Options

Instead of paying an allowance, my wife and I offer a “menu of earning opportunities” for our children to choose from. There are dozens of age-appropriate tasks they can complete to earn a set number of points. They keep track of their tasks and points and every Saturday morning, turn in their weekly worksheet. Then we ask how they felt the work went, evaluate the results, and discuss what they learned. Our kids like the personal freedom of this model and they appreciate the fact that their earning potential is not limited to a fixed amount.

It also teaches kids to set and achieve goals. When they want to buy something for Christmas or pay their way at Disneyland with friends, they come to us with the amount they need and find out how to earn it. Even our 5- and 7-year-olds do chores to contribute to birthday party gifts.

Just this month, our 14-year-old son has earned over $400 and is getting close to his goal of saving for an electric scooter or moped. I love seeing our kids work hard in pursuit of an objective they are excited to reach.

With commission-based earnings, kids quickly learn that laziness doesn’t pay. Maybe you’ve asked them to earn their admission to the movies with friends, but they don’t feel like putting in the effort. Missing out will likely prompt them to work harder next time.

See a Need, Fill a Need

Sometimes our kids get ambitious and exhaust their menu of earning options. When they ask what they can do to earn an extra ten or twenty bucks, I suggest they look around the house, see what needs done, and make a proposal.

This way, they learn to identify a need, then pitch a job and cost. Do they want to scrub, mop, dust? How much do they think it is worth? Are they over- or undervaluing the work?

My oldest daughter has gotten good at bidding on projects. When she was 15, she noticed my home office had become a minefield of books, so she suggested helping me clean and organize the office to earn extra money.

She proposed clearing and cleaning the shelves, categorizing each of the hundreds of books by subject, and reorganizing them in different sections of my library. She estimated it would take three to four hours to do the project (a gross underestimate) and suggested a payment of $40.

I agreed to her proposal, and she got to work. By the time she was done, the office looked immaculate and my books were categorized and easy to find. I told her she’d done a job worth closer to $80, so I’d pay her more than we’d agreed upon.

Of course, she was pleased—and motivated to find more ways to help out around the house.

Train Future Workers and Leaders

Don’t get me wrong. We still spend plenty on our kids as far as gifts and treats, but they don’t get everything they ask for. They need to make some contribution to bigger items. Some families have a fixed allowance for a fixed number of chores every week, but I like that our system allows for more choice and responsibility.

Our menu of earning options teaches kids to be good workers, associating specific effort with reward. Meanwhile, the opportunity to expand those options trains them to be good leaders: they learn not only to add value, but also to initiate, estimate, and negotiate that value themselves.

This approach takes some of the household burden off you as a parent, while helping your kids build an entrepreneurial mindset they can use for the rest of their lives.

About the author: Chad Willardson, CFF, CRPC®, AWMA®

Chad Willardson, CFF, CRPC®, AWMA®, is the president of Pacific Capital, a fiduciary wealth advisory firm he founded in 2011 that serves entrepreneurs and families. His bestselling first book, Stress-Free Money, has been featured in Forbes’s “21 Books To Read In 2021” and on NBC News and Yahoo Finance. Chad has appeared in the Wall Street Journal, Inc., U.S. News & World Report, Investment News, Entrepreneur, and Financial Advisor Magazine. For more advice on helping your kids learn to earn, you can find Smart, Not Spoiled on Amazon.