For every expert who lauds the benefits of giving a child an allowance, there is another who says it creates a warped perspective of how money and families operate in modern society. With so much disagreement, let’s take a look at the potential pros and cons.
If you do choose to give your child an allowance, you’ll want to take smart approaches that teach important lessons.
Benefits of Giving Children Allowances
Parents who give their children allowances have plenty of good reasons for doing so. Some popular reasons include:
- Teaching kids how to budget money
- Showing them how to weigh the difference between an essential expense and an unnecessary one
- Encouraging them to save money for larger purchases
- Letting them learn from their mistakes when the stakes are low
- Teaching them responsibility
By giving their children an allowance, many parents hope to equip them with the essential financial skills they’ll need to live as successful adults. Because the amount of the allowance isn’t huge, parents feel better about letting kids make a few mistakes. If children choose to squander their allowance, they’ll learn that running out of cash means they can’t buy other things they want. It’s better to teach them this when they’re young, rather than let them learn the lesson on their own as adults when they’ll face serious consequences if they manage money poorly.
The Downside of Giving Children Allowances
Some experts believe that giving children allowances teaches them the wrong things about money. Cameron Herold, a lifelong entrepreneur who created 1-800-GOT JUNK?, doesn’t give his children allowances because he worries that doing so would crush their entrepreneurial spirits. Herold believes that “allowances, by nature, are teaching kids to think about a job. An entrepreneur doesn’t expect a regular paycheck. Allowances are breeding kids at a young age to expect a regular paycheck.”
Instead of giving his children allowances, Cameron has them look for chores around the house. They can then come to him and negotiate a price for completing the chores. This teaches them how to recognize opportunities and develop negotiation strategies that will benefit their careers.
Other experts argue that children shouldn’t receive money for doing chores because it undermines family cohesion. These experts believe that children should do chores because they are members of their families and not because of a financial incentive. Parents, after all, don’t get paid for chores like cooking dinner and cutting the grass. Even if paying children to do these chores teaches them about financial responsibility, it also encourages a warped perspective of familial responsibility by telling them they deserve financial compensation for doing their duty.
A Smart Approach to Allowances
While there are clearly some good reasons for parents to avoid giving allowances, a survey from the American Institute of CPAs shows that 61 percent of parents pay their children allowances. Those who make this decision can follow a few simple steps to make sure their kids learn valuable lessons.
Some ways to use an allowance more effectively include:
- Choosing an amount that forces children to make tough financial decisions
- Starting around the time kids enter preschool
- Having kids do chores, so they learn that money isn’t free
- Increasing the amount over time to give kids more freedom and responsibility
- Practicing math skills such as addition and subtraction with money
- Budgeting money for spending, short-term saving, and long-term saving
While there is a lot of disagreement about whether parents should give their children allowances, practically everyone agrees that kids need opportunities to learn about money management. As long as parents focus on this topic, they will likely instill the most important traits in their children.