Allowance vs. Commission: Which One is Right for Your Family?

Teaching children financial sense can be a fun learning opportunity for parents and children, alike.  Jex, our contributing financial coach, highlights how the allowance and commission reward systems can be used to teach children the monetary value of personal effort and teamwork.

By Jex Leigh Roach

There are two common methods of giving your kids spending money: allowance and commission. In an allowance system, parents give their kids money at regular intervals, regardless of anything the kids do or don’t do. In a commission system, the kids earn the money their parents give them, typically through completing chores, and can lose their privileges if they misbehave or don’t finish their assigned jobs. There are advantages and disadvantages to both systems, and one may align better with your family’s culture and values.

The primary purpose of either system is to provide your children with spending money. As a parent, you pay for your kids’ needs and wants somehow—either directly or indirectly. Instead of your child asking you to buy candy at the store, your child can choose to spend their own money for it. This becomes more powerful as your kids get older and want more things—money for the school dance, a cell phone, trendy clothes; the list goes on. If you teach your children good money habits when they’re young, you’ll be able to take a more hands-off approach as they get older.

Allowance

For an allowance, parents give money to their children regularly, usually weekly or monthly. It’s a simple system that’s easy for everyone to understand and implement. An allowance aligns with the philosophy that a family is a team, and all team members work together. Many parents want their children to be contributing members of the family, but they don’t want to pay their kids for routine chores. This system teaches kids to complete their tasks because it’s the right thing to do, not because they’ll receive a reward for it. Another advantage is that it creates a more positive view of money compared to a commission system.

However, a potential concern is that giving an allowance will teach kids to become entitled by receiving money without working for it. To overcome this, you can simply explain that being part of a family has both benefits and responsibilities. Receiving an allowance is a benefit, and their responsibilities include doing their chores.

Commission

In a commission system, parents pay their children based on the chores they complete. This system is considered more realistic. It teaches kids that income is directly tied to working. A commission system is also a disciplinary tool in which the child is rewarded by completing chores and punished for not doing them.

The biggest downside to the commission system is that it’s a lot more work to keep track of the completed chores and, therefore, the earnings. Many families mitigate this by having the kids do the tracking themselves, which works if they’re old enough. A whiteboard with a list of chores and two columns for ‘To Do’ and ‘Done’ is simple but effective.

Another decision is how often to pay the commission the kids earned. Some families prefer to do it weekly, while others do it daily. The daily option has the benefit of creating consistency and immediate rewards. If the kids did all their chores that day, they receive the immediate reward of getting their full amount of pay. If they didn’t complete all their chores, they receive the immediate consequence of a loss of pay, which helps them adjust their behavior more quickly. However, the downside to frequent payments is that you’ll need a lot more change available.

Another potential downside of a commission system is that some children aren’t motivated by external rewards. Some kids may decide that certain chores aren’t worth the commission amount and therefore they won’t complete those tasks. Others might be motivated to complete their chores only when they have a specific purchase in mind; once they’ve made their purchase, they may choose not to do anything for a while. Parents will need a back-up plan for chores that must be done but aren’t completed by the child assigned to them. Does a sibling have an opportunity to earn extra for those? Do the parents complete them?

Combination

Some families use a combination of the two systems. They have a basic set of required chores (such as making the bed), and the kids are paid extra for doing additional, more difficult chores (like helping clean the car). Some families also pay their children for getting good grades in school or for other achievements. If you want a combination system for your family, it’s good to start with a simple allowance system for a while. When they get older and can handle more difficult chores, then you can introduce the complexity of commissions for the bigger jobs.

Aside from the advantages and disadvantages described above, another consideration is to think about what you, as parents, are trying to teach your kids. Some parents primarily want to teach their kids financial literacy—how to manage their money effectively. This is best achieved through an allowance system because kids can’t learn about money if they haven’t earned any through doing chores. However, if your priority is to teach record-keeping and consequences, then a commission system is the better option. 

Remember, choosing one system over the other isn’t a permanent arrangement. As your kids get older and their personalities develop, you may decide to change the system your family uses. As long as you clearly communicate the new system and expectations, your children will adapt to whatever system you’ve created.

For more information on how to create an allowance system by age, see Jex’s article ‘Teaching Your Kids Financial Literacy’ on pages 26-27 of the November 2021 BAMBI Magazine, or at bambiweb.org/lifestyle/teaching-your-kids-financial-literacy/.

Photos from Canva.

About the Author

Jex lives in Bangkok with her husband and two daughters, who are five and three years old. She has a Master in Business Administration and has studied personal finance since 2011. As the owner of Jex Leigh Financial Coaching, she helps individuals and families create better financial habits so they can achieve their dreams. You can visit her Facebook page at: facebook.com/jexleighfc

The views expressed in the articles in this magazine are not necessarily those of BAMBI committee members and we assume no responsibility for them or their effects. BAMBI Magazine welcomes volunteer contributors to our magazine. Please contact editor@bambiweb.org.