Don't give your kids an allowance just because you received one. You might not want to give them one at all.
I received an allowance as a kid. I can't remember how much it was and can't say that it created any great financial habits.
I got an allowance mostly because my parents got allowances when they were kids.
But is tradition a good reason to give your kids money? There might be some good reasons for NOT giving your kids an allowance.
I've been discussing the point with my wife as our son gets to the age where we might consider a regular allowance. I have to admit, even after talking to some other bloggers, I'm still not sure I have settled on whether or not to give him an allowance.
But I have come across some good reasons to question conventional wisdom.
Should Kids Get an Allowance?
I'll share my five reasons you shouldn't give kids an allowance below, but it might not be as simple as a yes or no decision. You'll see from the reasons not to give your kids the money, as well as the reasons you might consider it, that it's more a matter of HOW you do it and how you use that allowance to build good money habits.
To be honest, I had an allowance when I was younger, and I don't think it screwed me up too much. Derek at Money Ahoy argues five reasons you SHOULD give your kids an allowance as a rebuttal to this article and makes some good points.
Reasons an Allowance May Not Work as Well as You Thought
OK, enough shuffling back and forth on the topic. There are good reasons to give your kid an allowance, and done correctly, it might help create some good money habits, but it also might not work as well as you think.
1) When is the last time someone paid you for cooking dinner or cleaning up after yourself? If you give your kids an allowance for cleaning their room or helping out around the house, does that mean you will inspect their college dorm every week and pay them to keep it clean?
Kids need to learn that you do some things around the house just because they need to get them done. A family works together even if the rewards aren't as tangible as getting paid. If everyone pitches in, the work is done much faster and more fairly.
If one person never learns this rule of working together, the rest of the family will constantly have to pick up the slack.
Of course, there's a difference between your work outside the home and your family chores. Kids should be encouraged to be entrepreneurial, create ways of making money, and do work beyond their family chores. Encouraging this kind of extra work with a weekly allowance might not be a bad idea but do it on a performance basis. Your kid's allowance should be relative to the amount of work they did, not just a flat allowance they get every week.
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Do Allowances Mean Financial Responsibility?
2) If your kids receive an allowance but have no financial responsibilities, are they learning anything about budgeting or saving? Forcing them to save some of their allowances only makes saving a punishment, and is it fair to charge them for food or other necessities that you should be providing?
Teach your kids about financial responsibility by sharing yours. No, that doesn't mean making them pay for cable service. Talk to them about what it means to manage your money, including the hard decisions.
Help your kids get in the habit of saving, not because it's forced but because it allows them to do more in the future. Help them see what they can do on $25 each week and how to save it and turn it into an amazing experience every few weeks.
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Money Should Not Be a Reward
3) Should money even be used as a reward? Giving your kids money as a reward establishes the mentality that you only need to do things if you're getting paid.
Money may not even work as a reward for some kids. They may have no concept of money or sacrifice if you just give them a weekly allowance.
Thinking about allowances always reminds me of an episode of The Simpsons. Marge threatens Bart and Lisa by withholding their allowance until the yard work is done. After a quick attempt, the kids go back to watching TV and wonder why they're even bothering when everything is paid for anyway.
Of course, this still uses money as a reward, and I'm not sure I have the perfect answer for you. Make sure your kids understand it's not money they want or need but the things they can get from the money. That way, their work now and when they get older won't become just for the money. They'll be able to look beyond those little green paper notes to the real value of their effort.
A Better Allowance Idea Besides Money
4) There are better rewards than giving a child an allowance. Let them pick the family outing for the week, or just tell them how proud you are of their accomplishment.
This relates back to the first reason in the list. Don't feel like you have to reward your child for doing things they should be doing anyway. My dad devised a reward system for good grades in middle school, i.e., I got so much for an A and a little less for a B. After the system was stopped when I went off to college, I had to figure out a new motivation for studying and getting good grades…and it took most of my first two years to figure it out.
5) Better ways to teach your kids about money are through budgeting games and saving. Ask them to help you plan the family's budget. That makes it just as real to them as saving a few dollars a month for some intangible goal.
There are good reasons to give your kids an allowance, and I think you can do it without worrying about the reasons above if you take the time to reinforce the good ideas. The biggest problem with a regular allowance is that busy parents just don't take the time to talk to their kids about money. The allowance just becomes something the kids expect, and the parents don't take the time to talk about good financial habits or what the allowance is supposed to achieve.
Whether you give your kids an allowance or not, they will need some place to put their money. It didn't take long for our son to out-save his plastic Captain America change bank, so we opened a Capital One 360 savings in his name. The account earns interest 5-times higher than the national average, and he got a bonus of $25 just for opening the account.
Don't give your kids an allowance because you received one. Don't give them money because the ‘conventional wisdom says it will teach them good financial habits. Teach your kids good money habits by demonstrating them yourself and talking about important topics like budgeting, saving, and investing. Talk about where you've made mistakes with money, what it has meant, and the family's financial goals.
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Encourage Your Kids to Make Money in Other Ways
Rather than handing out an allowance to your kids every week or every month for doing the bare minimum, encourage your kids to find alternative ways to make an income from home. One way to do this would be to encourage your child to make a list of the things they are especially good at and then help them brainstorm ways to make money by utilizing those skills.
An example of this may be that a child decides they are great at baking and love doing it. If this is the case, encourage the child to bake treats to sell to family, friends, neighbors, or the public in a “lemonade stand” style.
Not only will this help your child make some money to save up for that cool toy they've been wanting, but it will also teach them about business and the true value of a dollar. It will teach them that money needs to be worked for and is not just handed out, which will, in turn, help them to understand why they can't just be given everything they ask for. It's a win-win!
If you want to go above and beyond and teach your child the importance of making money and giving back, you can encourage them to donate their money to a local charity of their choice. To further support and encourage this idea, you may even want to consider telling your child that you will match how much money they can make so they can donate more to the charity. This will excite the child and make them feel like they are making a difference in their community.
Read the Entire Kids and Money Series:
- How to Start a Kids Channel on Youtube
- 5 Best Jobs for Teenagers That Don't Suck
- How Can Lazy Teenagers Make Money Online?