The Power of an Allowance
An allowance for children is a surprisingly controversial topic. There are almost as many opinions as there are blog pages and articles on this topic. I hesitated to add one more, but a broad consideration of this incredibly important concept is needed.
Is an allowance a good, bad, or neutral tool? Should you use an allowance? Does it train the thought and behavioral patterns you want? Does it work? These are all good questions and the answers can vary from family to family.
Denise Cummins, Ph.D. in Psychology Today in Should You Give Your Kids an Allowance? looks at a range of approaches and the reasoning behind them. The three approaches examined were:
1. An allowance without requiring chores,
2. No allowance at all, either with or without chores, and
3. An allowance for chores.
Option 1, an allowance without chores
Psychology Today sums this option up with the comments, “The upside of this approach is that it teaches children to think carefully about how money is spent. The downside is that it teaches them that money comes from an authority as a gift. “
The other side of this option lies in whether the money that is given has any controls or guidelines over it in terms of whether any must be saved or donated. If restrictions are placed upon the uses of money, there is still at least some value through teaching some degree of financial discipline.
Option 2, no allowance at all
The idea of “communal sharing” underlies this option. The children are a part of the household, the family community, and they should share in the burdens as well as the blessings. The summation of this option is, “The upside of this is that children learn that there is some value to work other than the financial reward it brings; contributing to a common good can be its own reward. … The downside is that it teaches them little about financial responsibility, and even less about how to create their own wealth.”
Option 3, an allowance for chores
This third option requires chores to “earn” the allowance. The summation of this option by Psychology Today is, “The upside of this is that children learn a sense of empowerment—that the amount of money they have in their pockets is up to them and their willingness to work hard. The downside is that if your children may decide they’d rather not do the chores even if it means foregoing their allowance.”
Using that framework, first determine whether you offer an allowance at all. If you choose to offer an allowance, then you have to decide whether it will be with or without chores.
The better choice
The author of the Psychology Today article reached the same conclusion as I did. Do a blending of option 3, allowance for chores, and option 2, chores without an allowance. There are some “chores” that can and should be considered to be a part of being in a family; they do not “earn” any allowance. These chores are a family responsibility for everyone. On the other hand, there are additional chores that can be for “pay.”
Dave Ramsey in Why Your Kids Don’t Need an Allowance engages in a word game. Instead of an allowance, he says parents should use a commission system, which is what I call an allowance.
I recommend calling it an earned allowance and I have no fear of calling it “pay” because the lesson of this option is to teach about the world of work and compensation, a lesson in the connection between effort and compensation, quality performance and reward. Added to that, the idea of limiting spending and requiring both saving and giving of a minimum amount or percentage is also an excellent idea.
So, how can the two categories, family responsibilities and extra chores for pay be divided up? What chores should be a family responsibility and which are the additional chores for pay? That decision is unique for each household and likely will change as your children grow and mature. Here are a few ideas.
Making your bed, picking up your clothes, cleaning your room, clearing the table, doing the dishes (on a cycle with everyone sharing the responsibility at times), carrying in the groceries, and other necessarily repetitive tasks make very good family responsibilities.
You may also need to impose a penalty against any allowance for the child who misses a family responsibility.
I also suggest that you have a special family need category under family responsibilities to avoid surprise tasks and emergency needs from becoming bargaining sessions, “sure, I’ll help for $5.”
Additional chores for pay
This can include doing the dishes at an appropriate and safe age, yard work, doing the laundry, sweeping, mopping pet feeding and care, and other general household chores.
One of the advantages of starting when your children are young and being consistent in application is that it will tend to reduce arguments, at least arguments about money. Needless to say, as time goes on, there will be “discussion” about whether the pay rates are reasonable. It probably is overwhelming to add in a cost of living index, but do not forget that prices are going up and that at least every few years there may need to be a raise given for some of the supplemental chores. Likely the prices will also need to go up as your children get older since the costs of their goals (a phone, more expensive clothes, shoes and jewelry, a car, etc.) are so much greater.
There are some good apps to help you keep track and to make this interesting and modern for your kids. Check out the esavings’ post 10 Best Money Apps for Kids for ideas, but always remember that new options are coming online frequently, so an up-to-date search may give you a better product not listed there. The features vary from app to app, so check them out – and always check out the independent reviews before you download an app.
Why does this work?
Almost every moment of life for a child is a teachable moment. They have so much to learn about a very complex economic world. There will be many decisions that you can help with, and each of those decisions is at least one household finance lesson in itself.
Here is an illustration.
“The video game I want is $25 at store #1 and $27 at store #2. Store #2 is closer. Is it worth the extra chores or days to have to ride my bike farther to get the game? Oh, and I only have $22 saved up that I can spend. Is it worth the extra chores I will have to do (and do well) to get the game. But when I buy the game, I won’t have any money left at all, not for snacks or a movie. Is that game worth being broke? Is there a better choice?
There are lessons about value, sales taxes (that $27 game really costs close to $29), hard work, patience, balancing work and time, measuring the value of time, planning for future wants and needs, and many more. An allowance can be used to teach life.
Those lessons are important because many studies show that children leaving the home as adults generally believe they are not well-prepared to handle their own finances. Their level of confidence as well as their level of ability is not increased by classes in school teaching finance; instead, their level of confidence and ability is dramatically increased by communication at home about finances. One reason for the failure is that most kids (97%) are not required to save any of their allowance according to a 2019 survey by the AICPA, the American Institute of CPAs.
Gregory Anton, CPA and chairman of the AICPA’s National CPA Financial Literacy Commission makes my point, “One of the best gifts we can give our children is a solid education on how to manage their money … Simply handing money over to a child without guidance is a missed opportunity. By making an allowance a teachable moment, parents will help instill money management skills in their child at a young age that will help prepare them for the important financial decisions they’ll have to make when they’re older.” To complete this thought, wait for Part 9, The Power of Plastic and Beyond, the next article in this series.
The post Allowance Troubleshooter: 4 Common Problems with Kids’ Allowance addresses four common family spending and allowance problems, your child has poor spending habits, your child refuses to spend his own money, your child complains about not having enough money, and you can’t stop buying gifts for your child. The first three problems have to do with failing to set out the “rules” of the allowance for your child. That usually results in the child’s having unrealistic expectations. The fourth problem is a parental behavioral issue for the parent or parents who can’t follow their own rules and buy gifts, expanding upon the allowance and destroying the needed discipline.
This listing of the problems emphasizes the need for any allowance system to start with a good set of rules or guidelines.
A good starting point can be found in Scholastic for Parents, where they look at age appropriate allowance ideas in Allowance by Age. The thought of not starting until age 5 or 6 misses the mark and is way too late and the idea of giving an unrestricted debit card is a horrible idea (see next month’s Part 9 article), but the post otherwise has good ideas. See also ThirtySomethingSuperMom.com which has age appropriate ideas and printable chore lists. Check out familyeducation.com and its links to multiple other sites with ideas for chores and a lot more.
And check out our previous articles on Teaching Money to Children and Youth at www.idlewildfoundation.com/for-parents/ for a wealth of practical ideas for parents of children if all ages.
Your children are learning. Little kids and even bigger kids are like sponges. Even when they don’t seem to be paying attention, they are learning from you. You need to be their primary source of good learning – so you have to walk your talk, and make your life and your lessons Biblical. Your children will be far more likely to head in the right direction and stay headed right.
6 Start children off on the way they should go,
and even when they are old they will not turn from it.
About the Author
John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.