As parents, one of the most powerful life lessons we can pass on to our children is the lesson of how to manage money. If you are good with money as an adult, you can easily pass on the lessons you have learned to your children. But what about if you aren’t all that great with money? Regardless of your own financial upbringing, you can learn the basic principles of successful money management and give your kids the best start in life you can.
One way to teach kids about money is through the use of an allowance. Opinions differ as to whether allowances are an appropriate tool for teaching kids about money. And those in the “pro-allowance” camp have different opinions about how to administer allowances. Let’s look at some of the various thoughts about and methods of giving an allowance.
To allowance or not to allowance
One argument against giving kids an allowance is that you raise adults who think they should be given a handout just for existing. While I am a strong advocate that kids need to be taught that money comes from work, not a magic money tree, I think this position on allowances is overly harsh.
Giving young children some money as an allowance won’t breed laziness unless you let it. Instead, you are giving your child some responsibility to determine how money works, for better or worse, while the stakes are low. Let them blow their $5 on a silly purchase now so that they can learn from the experience. Better that than avoiding the subject until they blow their entire first paycheck on a frivolous purchase and then can’t pay their bills.
The “part of the family” allowance model
There are two main schools of thought about how to administer an allowance. The first is the “part of the family” model. In this version, we are acknowledging that the child deserves to have some money to manage merely by being a member of the family. The money is not earned through doing chores. This is the version we practice at our house, because Greg and I get an allowance, so it makes sense that Rowan does, too.
That doesn’t mean that our child isn’t required to do chores! Each year as she grows more mature, we grant her more responsibility. The early years were fun, because she got excited about having more responsibility. Now, she is on to us, and she doesn’t look forward to it as much any longer. Oh well!
The “work for pay” allowance model
The second school of thought on allowances suggests that children are compensated for the chores they do. The premise is that as adults, that is how the world works – we work for pay. While I think this model has merit, it is not the one we chose. We didn’t choose it for the above reason (Greg and I get allowances), and because I was not eager to assign a pay level to various chores and have to monitor it. Also, I feel that there are responsibilities we all have to maintain our home, and none of us get compensated to do it.
However, if this is the version of allowances you choose, make the most of it. This is your opportunity to drive home the basic concept of working for pay, but also that the quality of your work matters.
The hybrid method
There can be a third method for giving allowances, and it is a hybrid of the first two. In this version, the child would get a basic allowance for being a member of the family, but there would be special, or extra, chores that would allow them the opportunity to earn additional income. This is actually the method the Starks Family uses, but it is very seldom that we have additional projects for Rowan to do for pay.
This hybrid version can allow for good flexibility and offer the best of both of the above methods.
Final thoughts on allowances
There is no single best approach to allowances. You need to determine what method is right for your family. Regardless of the method you choose to use with your children, consider upping your financial literacy game by creating some parameters around how your kids can use their money.
For example, perhaps now that they receive an allowance, all splurge or impulsive spending they want to do is on their own dime. One of my favorite parenting moments was the first time Rowan asked to buy something and I told her she needed to use HER money. She changed her mind fast! Now this is a common tactic of mine when she wants something that I don’t feel is a necessity or that I feel is frivolous.
As your children get older and more mature, you might even consider increasing their allowance more rapidly and having them use only their own money to buy, say, the clothing they want. Teaching your children to be more discerning consumers as early as possible is an invaluable life lesson.
However you choose to do allowances, take advantage of every opportunity you have to help them learn to be good stewards of their money. You won’t regret it, and someday, they will thank you.
How do you do allowances in your home? Share below! Or if you want to start a discussion with some like-minded friends, join the free SimpleMoney Community on Facebook to share your thoughts!
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*Photo Credit: Greg Starks. Photo of Rowan with her chickens. She hopes to start a small business to sell her artwork and excess eggs. Yes, she’s in the coop with the chickens.