Experts recommend that parents give their children monetary gifts while they're alive, rather than leaving everything in a will. This helps adult children when they need it most, and it can reduce inheritance taxes when a parent dies.
The main reason for giving pocket money is to help children learn to manage money while they are young and you can still guide them. It is a valuable way to teach responsibility. Pocket money can help children feel that they are important members of the family because they are given part of the family's spending money.
Getting a regular allowance gives children the first opportunity of doing some careful planning of finances. They can save it for a big investment in the future or buy things that their parents would normally not buy for them.In some cases it can be a good thing to pay children for doing useful things around the house.
How to Set an Allowance for Kids. A commonly used rule of thumb for paying an allowance is to pay children $1 to $2 per week for each year of their age. Following this rule, a 10-year-old would receive $10 to $20 per week, while a 16-year-old would get $16 to $32 per week.
Giving pocket money to children as young as 4 or 5 years helps them start learning about the value of money and money management. For example, when children get pocket money, they have to make choices about spending or saving. And if they're saving, they'll learn about waiting for things they want.
You can choose to give away any amount and as many gifts as you like. If the total value of your gifts is more than the value of the gifting free area, your payment may be affected.
Cons Of Giving Your Kids An Allowance
An allowance may undermine the importance of contributing to the family. Your kids may get the perception that duties always deserve a reward instead of simply doing their share for the family. Paying kids for doing chores teaches them that working for money isn't always fun.
The latest survey from online discount-finding website Savings.com, 45% of parents with a child over 18 provide some form of financial support to their offspring. When adult children with disabilities are taken out of the equation, the number of parents providing assistance is still at 45%.
Teens should save 20% and have an emergency fund
Ideally, teenagers, like adults, should be saving 20% of their income, whether that's earned or an allowance, or a combination of both.
Lifetime Gift Tax Limits
Most taxpayers won't ever pay gift tax because the IRS allows you to gift up to $12.92 million (as of 2023) over your lifetime without having to pay gift tax. This is the lifetime gift tax exemption, and it's up from $12.06 million in 2022.
Usually young children get "gift" allowances. For some parents, when children are old enough to start doing chores, an allowance becomes "exchange" money.
It's important that you set clear boundaries with your parents when it comes to giving money to them, just like they should do if lending money to you. You don't want to create an unhealthy reliance on the money in perpetuity, and nor should you encourage them to spend the money frivolously and keep asking for more.
Kids and parents often have different ideas about when support should stop. In the Money poll, parents helping adult children generally believed kids should be independent by age 25, but acknowledged that in their own situation, 30 was more likely. Young adults put those ages at 27 and 32, respectively.
The average weekly allowance sits at $8 – down from $10 a year ago. Kids in NSW are the nation's top pocket money earners, with an average weekly allowance of $11, followed by kids in Queensland and Victoria, who earn an average $8 a week. Pocket money in South Australia and Western Australia averages $7 a week.
The Choosi Cost of Kids Report 2023 revealed the estimated annual average spend on child(ren) is $12,823 per household. Aussies spend an average of $12,823 on their kids per year. Couples planning to have children aim to save more than $31,000 to ensure they have enough funds for all the initial expenses.
You can gift your children an unlimited amount each year, with some caveats: Inheritance Tax rules could result in tax implications for your children or grandchildren when you gift them cash or assets. Depending on the value of the gift and when they receive it, the recipients may need to pay Inheritance Tax.
Average allowance for kids and teens — in 2022
That depends on your family situation — or if you're paying allowance for a specific purpose, like completing household duties or chores. A rule of thumb to follow is to give your kid $1 per week for each year of their age.
With money in their pocket, kids sometimes become callous with money. They start showing off this to their friends. Sometimes they might even get influenced by others and start comparing the amount of pocket money they and their friends receive.
A good rule of thumb is 50 cents to $1 for every year of the child's age per week or twice a month. For example, a 13-year-old would receive $6.50 to $13 per week or $26 to $52 per month.
Pros of gifting money:
There is generally no gifting tax in Australia (though you may be subject to capital gains tax if you gift someone an asset, like a house) It is much simpler to give a gift than to set up a loan. A gift won't generally impact on the amount of the mortgage that a bank will offer your child.
Whether you're a single person or a couple, the permitted amount is $10,000 in cash and assets over one financial year or $30,000 in cash and assets over five financial years.
In reality, you can gift as much as you like to your children or grandchildren, but they might have to pay an unexpected tax charge if you don't think about this when making your plans.