Should You Give Your Kids An Allowance?
What is the best way to teach children about money? Will giving an allowance help them to develop good money management skills? These are questions that parents may ask themselves when it’s time to begin teaching their children how to handle money wisely. Good financial habits are an important life skill that is not taught in school. Children learn quickly, so start talking with them about money from the time they can understand what money is and how to use it.
As a parent, you are your child’s CFP – Chief Financial Parent. In your role as CFP, you will teach them important money concepts about saving and spending that will help them become financially responsible adults. An allowance is a good way to teach children about money. There are two general schools of thought about allowances: they can earn money by doing chores or you simply give them the allowance with no strings attached. The first method is conditional, the second one is not. Let’s look at each one briefly for a moment.
The Unconditional Allowance
This type of allowance is given on a regular basis without requiring any chores to be done. Parents who employ this method feel that children should learn to do household tasks without being paid. Each family member is expected to help with household duties because that’s part of being a family and maintaining a home. On the flip side, handing out free money may create a sense of entitlement and poorer work ethic in some children. One way to address this is to have frequent conversations about how they are using their allowance and what they have learned from it. Talking with them about having money, saving it, spending it, and how it makes them feel, will encourage them to make smart money choices.
The Work for Pay Allowance
In this scenario, children are paid for performing a list of chores. If chores are not done, then the child does not receive any allowance. It is believed that this will instill a strong work ethic as children see a direct correlation between work and income. Parents who use this method want their children to understand that money is earned from work and not an entitlement. Chores can give children an appreciation of how hard it is to work and earn income. The downside to this method is that children may not do anything extra if they aren’t paid. For example, a child may not take out the trash when asked unless they are paid. They may not do something just to be helpful if there isn’t a reward for it.
Each of these methods has merit. What may work for one family, may not for another. It isn’t a one size fits all approach. You may find that you will need to tweak your strategy as you go along to fit your family’s lifestyle. Remember, this is a learning process for both parent and child. Regardless of which method you choose, the ultimate goal is to teach financial literacy to your children by using an allowance as an educational tool. You may just learn something new too and you will be one proud Chief Financial Parent!