Many parents struggle with whether or not to pay their children an allowance. I know I did. Even worse, I vacillated. Sometimes I would give my children an allowance and other times I wouldn’t. I learned I shouldn’t have done that. What I recommend instead. If you decide to give your children an allowance, make it a learning opportunity. Use it to teach them money management skills. Use it to teach them your values regarding money.
Teaching Money Management Skills
Income versus gift. Are you paying your children in return for them completing a task or tasks, or is their allowance a gift? Decide before you implement an allowance and explain your thinking to your children. If you are paying for a task or tasks, what is expected? Be specific. How much is the work worth to you? Do you feel children should help out their family members without expecting payment? Maybe a compromise is in order where you don’t give an allowance for regular household chores. Instead you give them a regular gift of money to manage, but you also pay per project for bigger tasks.
Other questions to consider. Will you pay your children for their grades? Should different grades have a different monetary value? Do you believe that school is a child’s work? Remember, you are reinforcing lifelong financial values in your children.
Spending versus saving. Do you want to encourage your children to save their money or are you more concerned with teaching your children to make wise spending decisions? These aren’t mutually exclusive, but depending on how you approach your children’s allowance most parents end up emphasizing one over the other. If teaching good savings habits is most important to you, consider matching your child’s savings. For example, say your child saves $10 of his/her allowance in a month. At the end of the month you give him or her another $10. Keep in mind that this can get expensive for you, but it definitely encourages children to save. Such a savings plan should also have a defined, and agreed upon, goal before any money is spent.
What if you are more concerned with teaching your child about spending? Depending on the age of your child you may want to refuse to make any discretionary purchases for your child except on birthdays and gift giving holidays. This means your child is dependent on allowance money for everything he or she wants. You will find there is a big difference between wants and needs when a child is spending his or her own (allowance) money. One caveat though. If you require your children to use their own (allowance) money you should not tell them what they may or may not buy. You can certainly offer suggestions, but the final decision needs to be made by the child. After all, it is their money.
Another possibility is to implement both options: a savings match and the requirement that your children use their allowance money for discretionary spending purposes. As I said, these possibilities aren’t mutually exclusive, but the more alternatives you add to your allowance policy the more potential there is for unforeseen complications.
Another approach is to tell your children how to allocate their allowance money. For example, Susan Beacham of Money Savvy Generation recommends splitting money into four categories: saving, spending, donating, and investing. She has even designed a piggy bank with four sections, one for each category. Again, depending on your values concerning money, this approach may or may not appeal to you.
This certainly isn’t an exhaustive list of options. Far from it. However, use these ideas as a road map to develop your own goals regarding your children’s allowance.
Teaching Values
We all have our own set of values where money is concerned. If you believe, as I do, that one of our most important roles as parents is teaching our values to our children, then make sure your allowance policy is an accurate reflection of your values. Think about the beliefs and behavior you want to pass on to your children. Once they are clear to you, the answers to whether to pay your child an allowance and how to go about it will come much more easily.
