Why (even little) kids should get an allowance

I started giving my son, Adam, a weekly allowance last year when he was five.

I started giving my son, Adam, a weekly allowance last year when he was five. If you think that’s too young, consider recent reports that show the average Canadian now owes $26,221 in consumer debt—not including a mortgage. Parents instinctively teach toddlers about nutrition and try to get them into the habit of eating healthy foods, so why not also help kids learn smart money habits as early as possible?

Here are five valuable lessons you can teach your kids by giving them an allowance:

  1. The value of a dollar. Kids often don’t understand what “too expensive” means until they have their own money to spend and are able to see what they can—or can’t—afford.
  2. How to save. Adam gets $2 a week, and we mark down on the calendar how many weeks he’ll need to feed his piggy bank before he can afford a desired toy or game.
  3. Comparison shopping. After Adam decides what he wants to buy, we sit down at the computer together and check prices online at various stores and see whether or not there is a cheaper alternative to match his budget.
  4. Bad purchases are no fun. You definitely want your kids to make this discovery when the stakes are low, not when they’re buying their first car. For Adam it came when the game he’d been saving for was out of stock and he decided to buy a different one on a whim. The store clerk told him he probably wouldn’t like it and, sure enough, tears ensued when he got home and played it. Lesson learned.
  5. How to be enterprising. Once kids realize how long it takes to save up for a big purchase, they might be motivated to find additional sources of income. It wasn’t long before Adam asked to do extra chores for money (although we haven’t been able to agree on any yet) and he also decided to trade in a couple of video games he wasn’t playing anymore for store credit.

About the Author

Tamar Satov

Managing Editor, CPA magazine
Tamar is a journalist specializing in business, parenting and personal finance. She blogs regularly in this space with advice and anecdotes on her efforts to raise a money-smart kid.