This week, Money360 attempts to address challenging questions in personal finance by looking at both sides of the story and figuring out some of the factors you need to look at to make a decision.
As my son approaches an age where he starts to really understand money (he already is understanding the idea that money can be exchanged for items), the issue of an allowance starts to rear its head. Growing up, I had an allowance sometimes – at other times, I had a system of earning money for tasks, and simply nothing at all at other points. My wife had an automatic allowance, but a very small one.
Naturally, in our desire to raise our children with some sense of financial self-discipline, the issue of an allowance has already come up for serious discussion. The answer, however, is not so clear. Let’s look at both sides of the issue.
As soon as possible, children need to feel the risk and reward of completing tasks for earnings. In the real world, people don’t receive money for nothing – they have to work for that money. Children should realize that with effort comes reward, but a lack of effort brings a lack of reward.
Part of the job of parents is to prepare children for the real world, and giving them something for nothing gives them a strong false impression of how the world works. If you supplement this with very strong financial and personal lessons, they may be able to overcome this, but actions speak far louder than words, and they’re learning, by your actions, that they should expect compensation for things they’re going to have to do in everyday life.
A child that is well-rounded will eventually learn that there is a fair market value for some jobs and then they will come to expect some compensation for those tasks – mowing the lawn, for example. However, there is no fair market value for making one’s bed, and to expect to be compensated for it either assumes you’re rich enough to afford a maid (which makes most of this conversation moot) or you’re teaching them some very faulty lessons about life.
In a household, there are certain expectations that everyone should fulfill to keep things moving forward. These responsibilities vary from family to family, but in most families this usually involves a child keeping his room clean, helping with dishes, and perhaps a few other tasks.
These are fundamental tasks that parents do without financial reward, and so should the child. Sometimes tasks need to be done and aren’t met with financial reward – adults don’t receive payment for doing the dishes or making their bed, so it creates false expectaions if a child begins to expect to get paid for such things.
When an allowance is given to a child in exchange for basic chores, it creates a very false reward system. They expect to be rewarded for doing basic household tasks, and that kind of expectation does nothing but persist and grow over time into some beliefs that funds should be expected for basic things that, in adulthood, they simply won’t receive compensation for.
There are some systems where it’s fine to pay a child – extra chores and other accomplishments above and beyond the average. But a basic allowance tied to basic chores teaches things that you really don’t want to teach.
I’m fine with a basic allowance completely not tied to basic chores. A small allowance of something like $5 to $10 a week seems appropriate to me – it enables the child to figure out some financial lessons for themselves. Meanwhile, they should be expected to complete some tasks, but it’s not tied to their allowance – that expectation should be taught via other carrots and sticks.
Similarly, I’m on board for “bonus” allowance for doing things above and beyond the usual. For example, I have no problem with paying a child to mow the lawn – I’d have to pay someone to do that, too. I’m not real strong on bonuses for great grades – I guess I can tolerate a small amount for an A, but that’s really not something I’m sure about.
I don’t feel that the giving of a basic allowance by itself can teach useful lessons. Tying it directly to tasks teaches things I don’t feel right teaching. However, I think that many valuable lessons can be taught after the allowance is given: budgeting, investing (in a savings account), and so on.