How (and Why) to Put Your Kids on the Payroll
We’ve all heard the joke that kids are expensive (because, wow, are they ever), but what if giving them money was actually one of the best parenting moves you could make?
It sounds backward, I know. But whether it’s for chores, a weekly allowance, or helping out with the family business, putting a little cash in their hands is a low-stakes way to teach big life lessons. And if you do it strategically, it can also be a massive wealth-building hack for their future.
Why bother paying them?
Think of this as "Financial Literacy 101." When kids have their own money, the gears start turning:
- They learn to budget: Suddenly, that toy doesn't look as necessary when it's their money on the line.
- They learn patience: Saving up for something big teaches delayed gratification better than any lecture can.
- It’s a safe space to fail: I’d much rather my kid waste $5 on cheap slime now than make a $5,000 credit card mistake when they’re 25.
Option 1: The "Chore Economy" (Casual)
This is great for building that simple "effort = reward" connection.
- How to do it: Keep it simple. Maybe taking out the trash is worth $1, but raking the whole yard is a $5 job.
- Pro-tip: Don't monetize everything. You don't want them asking for a commission just to put their own plate in the dishwasher. Some things we just do because we're part of a family.
Option 2: Allowance (No Strings Attached)
Some parents prefer giving a set weekly amount just to teach budgeting skills, regardless of chores.
- The Rule of Thumb: A common formula is $1 per year of age. So, your 7-year-old gets $7/week.
- The Hard Part: If they blow it all on Monday and want candy on Wednesday, you have to be strong and say "sorry." It’s tough love, but it works!
Option 3: The "Household Employee" Strategy (For Non-Business Owners)
Here is the game-changer. Even if you don't own a company, the IRS says you can hire your kids to do domestic work around your home—like babysitting siblings, mowing the lawn, or deep cleaning—and treat them as Household Employees.
- The "Magic" Loophole: If you pay your own child (under age 21) for domestic work, you generally don’t have to pay Social Security or Medicare taxes on their earnings.
- The Benefit: Because this counts as earned income, they are eligible to open a Custodial Roth IRA, allowing you to jumpstart their retirement savings tax-free.
Option 4: The Family Business Hack (For Business Owners)
If you do own a business, you have an even bigger opportunity. You can legally hire your kids to do age-appropriate work for your company (like stuffing envelopes, cleaning the office, or social media help).
- The Win-Win: They get real work experience and earned income (Roth IRA eligible!), and your business gets a tax deduction for their wages.
- The Catch: Just make sure the pay is reasonable—no paying them $100/hour to "consult" on crayon colors.
Keeping it all straight (and IRS-proof)
If you want to unlock those Roth IRA benefits—whether via household work or a family business—you can't just hand over cash and hope for the best. The IRS requires proof that the work was real, the pay was fair, and the hours were tracked.
That is exactly why we built Pixie.
Pixie isn't just a chore chart; it's a record-keeping tool designed to help you organize your kids' pay legally. It tracks tasks, hours, and payments so you have a solid paper trail. Whether you are paying them wages from your family business or just for mowing the lawn, Pixie ensures you have the documentation you need to confidently contribute to their Roth IRA.
The Bottom Line: However you choose to do it, paying your kids is an investment in their future confidence. Start small, stay consistent, and use the right tools to turn that pocket money into a nest egg!