Allowance or commissions: How to teach your kids about money

Should you give your kids an allowance or commissions? How to teach your kids about money by letting them have their own.

Growing up, I never had an allowance and I wasn’t paid for chores around the house (commissions), but my parents would buy everything we needed (and a lot of our wants too). It wasn’t until I started working myself that I actually had to learn how to budget money.

Even then, I still didn’t have a great grasp on money or finances or the importance of building wealth.

Now, as a single mom, I want to make sure that my kids grow up with a great understanding of money, budgeting, and how to stay out of debt and build wealth.

teach your kids about money with allowance or commissions?

As a parent, your job is to teach responsibility.

However, many parents don’t know how to teach financial responsibility.

In order for kids to understand money, they need two basic things:

To have their own money
Have control of their own money

The only way kids will get money is if:

You give it to them.
They earn it (by working).

Even young kids can find ways to make money, but most often parents choose to either give an allowance or commissions.

There are lots of different ideas about allowances and chores and how they are related. Let’s check them out.

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Allowance or Commission?

Allowance: Pros and Cons

What exactly is an allowance?

Parents pay kids a regular rate (usually weekly) independent of any other circumstances (not tied to chores, grades, behavior, etc.). (In other words, you give them money.)

Pros of giving an allowance

Can teach money management
Encourages budgeting
Provides spending money

Without setting up specific guidelines regarding allowances, there can be quite a few cons to this system:

Cons of giving an allowance

If you don’t set up guidelines for budgeting and spending, kids won’t learn much about finances and money management.
Kids can become entitled. If you get money for nothing, then why work?
Getting free money could possibly teach your kids that work is boring.
If you are struggling financially, it may be hard to give an allowance regularly.

Related: How to get out of debt

Related: Frugal living on a tight budget

Commissions: Pros and Cons

What are commissions?

Commissions are payments for completed work.

You can pay kids for doing chores or other types of jobs. (In other words, they are earning money by working.)

Pros of giving commissions

Money is earned based on the amount of work done. There are no freebies. Kids learn that completed work = paycheck, instead of just a handout from mom and dad.
Teaches kids the relationship between work and money.
Kids learn the value of working hard for pay.
You can start the “work = paycheck” lesson very young. If your child can complete a chore, they can get money for doing so.
Can be an incentive to get chores done.

Cons of giving commissions

You will still probably need to actively teach your kids how to budget their money, as well as other important money lessons.
If you pay for ALL chores or work done at home, kids can lose a sense of family responsibility. (I tell my girls all the time, especially when they grumble about helping me clean up, “We help each other out because we are a family and that is what families do.”)
If you ask them to do a chore or job, your kids might bargain for money.
If your kids don’t want money that week (or month), they might not want to do chores.

Find a balance between doing “free” chores because you are part of a family and getting paid for doing chores.

You don’t want to give your kids free money all the time (like an allowance) without expecting any work and you also don’t want to pay for all of the chores.

So, what can you do?

Establish a system that works for your family.
Decide which chores you will pay and what amount and which chores are required to be completed because you are part of a family.
Be consistent.
Kids thrive on learning through consistency. Stick with your plan and pay honestly and regularly.
Keep track.
Have a little chart to keep track so your kids can accomplish their chores on time (and you can pay on time too!)

Getting started with commissions:

Keep jobs simple – particularly with little kids.
Require kids to finish the job the best they can. A note: Be gracious and understand that younger kids need to be formally taught how to do chores and also may not do them to your standard for a long while. They just need practice. Don’t expect “perfection,” especially at first.
Be clear about regular family jobs vs. paid jobs.
Make payments simple and easy (for you and them!). Have age-appropriate chores and payments (25 – 50 cents for little kids per job, for example).
Pay little kids immediately. Since little kids live in the moment, pay them immediately after they complete a job so they learn to associate the connection between work and money. Have an obvious, visual place to keep the money (like a piggy bank).
For older kids, have a chore chart and pay once a week.

Take time to teach your kids the relationship between money and work and the value of doing a good job at what you do.

They will learn dignity and develop good qualities to help them in life and when it’s time for them to get a real job.

The traditional weekly allowance doesn’t go very far in teaching your kids about the connection between work and money and it leaves out many other important skills they need to learn, like: budgeting and saving. If you are trying to decide between allowance or commissions, make sure to find a way to show them the connection between work and pay. Don’t forget to include lessons about money so your kids will make smart money decisions in the future.

For further reading, check out these great books:

Smart Money Smart Kids by Dave Ramsey and Rachel Cruze