The Great Debate: Should You Give Your Kids an Allowance?
Should you give your children an allowance?
Teaching kids about money management is a big job for parents, and there are many ways to go about it. However, before you can teach kids how to manage money, you need to decide how you’ll approach the matter -- as well as make the crucial decision whether or not you’ll offer an allowance.
In addition, you’ll need to think about any conditions you’d like to attach to the allowance, like chores or responsibilities, as well as how to address the subject with children of different ages. How do you figure it all out?
When Should You Start Teaching Kids About Money?
Start talking to your children about money as soon as they bring up the subject -- even as early as age two, recommends financial planner Elizabeth Kiss. By the age of nine or so, they should understand money and be able to compare prices. She also thinks it's a good idea to give your children some money so they learn to manage it well. Kiss says the regularity is more important than the amount.
How to Talk to Children About Money
Most experts agree that giving kids a small amount of money as part of a “money talk” and lesson about values is a good idea. For example, Jim Conway, a parent education expert, advises that you "Instill money management skills by giving young people responsibility for some money and teaching them how to use it wisely and responsibly." Here are some other suggestions he offers:
- Let your child take part in money decisions.
- Have limits on what they can spend
- Introduce them to role models who are responsible with money
- Let them make small money mistakes and learn from them
To help kids resist the temptations of materialism, Conway suggests teaching them the difference between what they want and what they really need, and setting a good example for them with your own spending habits. He also advises that you "Guide young people to share or give away a portion of the money they receive from jobs, allowance, gifts and other sources."
Teach children that personal identity is not tied to money, Conway recommends. "Do not give your child messages that suggest that those with less money are less important." Again he advises teaching by example, and adds that you should help your kids "find other sources of meaning and purpose."
The Allowance Decision
A "regular, unconditional allowance may be akin to cruelty to children,” says SUNY Buffalo professor of finance Lewis Mandell. Why? He claims that as a teaching tool, allowances aren't effective and can even hurt children. He points to surveys showing a correlation between receiving an allowance early in life and doing poorly with money management in high school.
Other experts are skeptical of these claims, and even Mandell says that some parents will get good results when paying their kids an allowance -- as long as they talk to them about budgeting and other money topics. In fact, most experts say that these money discussions with kids are an important part of giving an allowance.
Ron Lieber, author of The Opposite of Spoiled, a book about money, children and values, gives his own daughter an allowance and thinks there is great value in doing so. But in an interview on NPR, he notes that there are two ways to give an allowance.
1. Give an allowance without requiring any chores
This is the approach that Liber and his wife use with their own child. Their seven-year-old daughter gets $3 each week, of which a dollar goes into a savings jar for longer-term goals, and a dollar is put in a jar for donation to a cause of her choice. The last dollar is hers to spend on anything, and making her own spending decisions gives her confidence and a sense of empowerment, according to Lieber.
2. Link an allowance to work or responsibilities
Parents can either require all chores to be finished to get a specific allowance, or pay a certain amount for each task. The idea is to instill a work ethic in your children, but Lieber thinks there is a problem with this approach. He points out that a child might decide money isn't necessary, and then logically expect to opt out of helping with the household chores. Besides suggesting that the child can avoid sharing in the housework, this takes away the power of an allowance as a teaching tool for money management.
How Much Should You Give as an Allowance?
If you decide that an allowance is a good idea, when should you start, and how much should it be? Here are some findings from a survey commissioned by the American Institute of CPAs:
- More than 60% of parents give their kids an allowance
- Most start the allowance by the time their children are eight years old
- The amount varies with age
- The average amount for all ages is $65 per month
- About half of parents financially reward their kids for good grades
- The average payout for an "A" is $16.60
- Buying toys and hanging out with friends are the most common uses of allowances
- Parents who give kids an allowance are more likely also to pay for things their children want, like downloads, movie rentals, cell phones and hobby-related items
- Almost half of the parents surveyed expect to pay the bills for their kids to at least the age of 22
Those last two findings make one wonder if the kids are learning much money management from those allowances -- is professor Mandell at least partly right?
The survey also found that parents were more likely to have talked to their kids about eating right or getting good grades than about wise use of money, so maybe that's the problem. Make a point to talk to your kids about money, and consider starting with a small allowance and increasing it only as they demonstrate financial responsibility.
Your Turn: Do you think it’s a good idea to give kids an allowance? How much is a good allowance, and should kids have to work for it? What do you do with your own kids?