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April 22, 2015

Using allowances to teach kids about money, responsibility

In 2015, 70 percent of parents reported giving an allowance to their children ages 8 to 14, according to the Parents, Kids & Money survey from T. Rowe Price.

This is an increase from the 47 percent in 2013. Of those kids who do receive an allowance, the survey showed 60 percent are required to earn it, while 10 percent get it with no strings attached. The remaining 30 percent gave no allowance.

Not only are more kids receiving an allowance, but they are also getting more money, according to the report. The number of kids getting $51 or more per week jumped from 2 percent to 9 percent from 2013 to 2015.

Despite the increase in parents giving their children allowances, more than one-quarter (27 percent) say it’s not important to include kids in discussions about family finances, and 41 percent say that they sometimes avoid talking to their kids about money, the report says. 

Kiplinger offers tips on how to use allowances to teach children about money and responsibility. Its two-tier allowance system involves giving kids a base allowance that isn't tied to basic household chores, which they are expected to do without pay. Instead, children are given "financial chores," which include spending and saving for activities and events they enjoy. 

This system has three pluses: It sets up a sensible, and workable, arrangement for tying allowance to chores. It's easy to keep track of — you can pay for jobs on the spot, assuming the work meets with your approval. And it's an effective way to make kids responsible for managing their money.

As far as pay, Kiplinger suggests starting with a weekly base allowance equal to half a child's age. This can then be increased as necessary depending on how old the child is and what he or she is expected to pay for.

Read more from Kiplinger.