Don't give your kids an allowance just because you received one. You might not want to provide them with one at all.
I received an allowance as a kid. Unfortunately, I can't remember how much it was and can't say that it created any positive financial habits.
I got an allowance mostly because my parents got allowances when they were kids.
But is tradition a valid reason to give your kids money? On the other hand, 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. But 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 be more complex than 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.
I had an allowance when I was younger, and I don't think it screwed me up too much. However, 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. Allowances Create Bad Habits
When was 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 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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2. Allowances Don't Teach Financial Responsibility
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. Is it fair to charge them for food or other necessities you should provide?
Teach your kids about financial responsibility by sharing yours. No, that doesn't mean making them pay for cable service. Instead, 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 you forced them, but because it allows them to do more in the future. Help them see what they can do with $25 each week and how to save it and turn it into a fantastic experience every few weeks.
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3. Money Should Not Be a Reward
Should money even be used as a reward? Giving your kids money as a reward establishes the mentality that they only need to do things if they are getting paid.
Money may not even work as a reward for some kids. They may have yet to learn of money or sacrifice if you 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 they complete the yard work. 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 still trying to figure out 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 actual value of their effort.
4. There are Better Allowance Ideas Besides Money
There are better rewards than giving a child an allowance. Let them pick the family outing for the week, or tell them how proud you are of their accomplishment.
Allowing them to choose an outing relates to the first reason on the list. Please 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. However, my parents stopped the rewards system when I went off to college. I then had to find a new motivation for studying and getting good grades. It took most of my first two years to figure it out.
5. There are Better Ways to Teach Kids About Finances
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 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 need to take the time to talk to their kids about money. As a result, the allowance 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. Instead, 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 list 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 loves 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 actual value of a dollar. It will teach them that they need to work for money and they will not just receive a handout. Which will, in turn, help them to understand why they will not recieve everything they ask for. It's a win-win!
Suppose you want to go above and beyond and teach your child the importance of making money and giving back. In that case, you can encourage them to donate their money to a local charity. To further support and promote this idea, consider telling your child that you will match how much money they can make so they can donate more to the charity. This bonus 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?
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.