Deciding whether to give your kids an allowance is a decision that depends a lot on your specific family situation. One benefit of giving them their own money is that it helps to teach them about the value of money and how it’s earned.
My wife and I have generally not given our younger kids an allowance, but as my kids have gotten older and gotten part-time jobs, we've settled into a routine to help teach them the basics of finances. With teens (14+) being able to have their paychecks deposited directly into their GoHenry accounts - this process has become much easier to manage.
Our son gets paid from his part-time job every other Friday. We sit down on payday and review his earnings. We count out the exact amount of his gross pay and then divide it into four categories.
The first thing we do is subtract out the money he's paid for various taxes. Even though the taxes are automatically taken out of his paycheck and he never sees them, I feel like it's a good lesson for him to understand that this is money that he is paying.
2. Charitable Contributions
We calculate 10% off his gross pay, and put that aside to give to charity. He then decides which cause/charity he wants to contribute to and will make the donation himself. You may also consider an automatic donation to a single organization, that way they don't risk forgetting to give. Teaching kids to give early can have long-term benefits in helping them establish a healthy relationship with money.
The next thing we do is take out 50% to put into his savings account. My son has opened up a Roth IRA, and we'll take this money and transfer it into this account that allows him to save for retirement or college. He may not be able to sustain a 50% savings rate once he's an adult with actual bills, but for now, even 40% of his part-time job is more money than he's ever seen in his life. Starting these plans early gives him a chance to grow the money he earns over time.
4. Spending Money
The rest of the money my son earns is his spending money. He will set up a short-term saving goal for larger items he wants to buy but ultimately this bit he manages on his own to spend on going out, or things he wants. Having a teen debit card makes the process of managing saving, spending, and giving so much easier.
The Bottom Line
It's never too early to teach your kids about the value and importance of money. Even younger kids can follow this system with birthday money, an allowance, or money earned from doing jobs around the house. Learning these financial basics at a young age will help them when they become adults and start earning more money.