Allowance: Fiscal Responsibility or Incentive?

Are you a star chart, allowance, or rewards system family? While some families choose to use rewards systems in elementary and middle school, others start issuing a more formal allowance early on. According to T.Rowe Price’s 2019 Parents, Kids, and Money Survey, 51% of parents give an allowance if earned, and 17% give an allowance with no requirements. There are two schools of thought on allowances — teaching fiscal responsibility or incentivizing weekly chores. Which camp do you fall in? We explore the merits of both in this article.

Teaching fiscal responsibility

Receiving an allowance teaches kids the oh-so-important - yet rarely directly taught - skill of money sense. According to the latest PISA financial literacy assessment, about 20% of U.S. students do not meet baseline levels for financial literacy proficiency. Regardless of socioeconomic status, the most financially literate students all have one thing in common – a bank account. To help your children learn financial responsibility, you might want to set rules for how kids can spend their money and require them to save a portion, as providing an allowance without any guidelines does not translate to fiscal responsibility.

Digital tools such as Three Jars provide real life practice for saving, spending, and giving. While many kids spend their allowance all at once if given the opportunity, this model provides structure and ensures that the child is learning how to save and give.

Kids learn so much through observation, so do not be afraid to invite them into conversations about financial decisions. You can do this without oversharing.

For example, some parents may choose to create a mock budget rather than share their actual family budget, home value or annual salary. With elementary-aged children, consider talking about what money is for, allowing them to pay cash and make change for goods in a store. Additionally, you can show them how much it costs to buy items they use every day, such as toiletries and food. Allow your children to see the bill at a restaurant and practice calculating a tip. As your children get older, they will benefit from sitting with you to pay bills (or review the monthly bills set on autopay) to learn about due dates, interest rates, and late fees. From you, they will learn what it looks like to live in this city on various incomes and what steps to take to secure financial freedom.

Incentivizing your kids

If you choose to incentivize your kids with an allowance, do you offer it for required household jobs or as motivation to perform additional tasks?

Julie Lythcott-Haims, author of How to Raise an Adult, says, “Chores and love are the two things that really matter when it comes to parenting.” She goes on to say that chores teach kids a work ethic and how to be dependable for tasks, even the unpleasant ones, to contribute to the “greater whole.”

Having an allowance provides kids with positive reinforcement for doing the things you want them to do. Tasks such as initiating homework without prompting, keeping their room tidy, and taking out the trash may be required to earn their weekly pay. Kids who want to earn more may choose to take on additional projects.

Apps to manage allowance

Regardless of why you issue an allowance, there are many apps available to help you and your child manage the currency. Or if you would prefer to keep your child off electronics, there is always the old school option. Cash is a great way to teach a young child how to count money and visualize spending it down. If you are interested in a digital option, here are a few of our favorites:


FamZoo is a private family banking system designed to help parents teach their kids to earn, save, spend, and donate money. Through the app, parents define the virtual family “bank rules” to match their own values and goals. Parents manage their children’s funds in the form of prepaid cards or “IOU” accounts and can set up features such as automated allowances, rewards for chores, budgets, loans, and expense sharing. In our experience, this tool works best when the child receives the same amount of money each week.


iAllowance is a virtual piggy bank. This app enables parents to track children’s chores, set up automatic allowances, and provide children with rewards for meeting specific goals. Features include push alert chore reminders, iCloud syncing, and printable reports.

Rooster Money

Rooster Money is a digital tracker that enables children to keep track of their money, save towards goals, and earn rewards. This interactive app gives kids the autonomy to decide where to spend, save, and give their money while letting parents offer suggestions and oversee choices. Automatic and ad hoc allowance options give parents the opportunity to choose how they want to contribute money while empowering children to make wise financial decisions.

Three Jars

With Three Jars, parents are the bank. Kids earn money in the form of IOU’s that get placed in three interactive jars - saving, spending, and sharing. Parents collaborate with their kids to help them decide how to allocate the funds.


How to Raise an Adult

Julia Lythcott Haims’ TED Talk

~Courtney Wittner, M.Ed

Director, Hayutin & Associates

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