Question: What are your thoughts on giving kids an allowance?
Answer: This is a tough one because what works for one family may not work for another. Personally, though, I believe allowances can be a great way to teach your kids how respect and manage money if you can implement the right allowance system or a combination approach. I’ll explain three basic allowance systems and how they work.
Taking the time to learn wise financial strategies and putting them into practice has a great impact on your children.
Research shows that most kids are destined for a financial future that is remarkably similar to that of their parents. So what you teach them (or don’t teach them) about money is likely to stay with them for the rest of their lives!
You can take advantage of this opportunity to prepare your children for a great financial future. Besides managing your own money well so they mimic positive financial choices, you can also teach your kids the practices of budgeting, saving over time, and much more when you use an allowance system.
Most of the problems
I see regarding allowances occur when parents do not implement a consistent system for the kids to understand and follow. Ad hoc allowances are pretty much a waste of time for teaching money skills.
Starting an Allowance
Try to recognize when your child is ready for an allowance. If you begin too soon, your child won’t comprehend the value of the money he receives. Typically, a good starting time is when the child is old enough to understand how the allowance system will work.
Allowance Systems
There are three types of allowance systems from which to choose:
Gift System. The gift system is simply a weekly payment to the child. The money isn’t given based upon any work/chores the child does or fails to do. The child gets the money just for being part of your family.
- The advantages of this method are that it is consistent and unchanging. There are no decisions that need to be made.
- There are many disadvantages:
- The child is less likely to truly appreciate it.
- He doesn’t gain a sense of achievement.
- The child is also unlikely to develop financial responsibility when the money is just given to him and he’s done nothing to earn it.
Reward System. The reward system is the most widespread system parents utilize. Parents establish a list of chores for the kids to perform on a weekly basis and then pay an established amount for the successful completion of the chores.
- The advantages of this system are that there are penalties for not doing the assigned chores and rewards for doing them. So this system has both reward and punishment built into it.
- The disadvantages are somewhat difficult to see when the kids are younger, but the reward system sometimes results in a child that only wants to do something if it’s part of the established list.
Income System. The last system, the income system, is similar to real life. When there is a task to do that is not typically expected of your child, he gets paid to do it. Basically, you want to create an allowance that is paid to your child for work beyond the normal responsibilities.
This allowance will vary, but it seems to have more positive impact than the other two systems. So you could have a simple chore list that the child must complete without financial compensation, then any other work beyond that list would result in receiving the allowance.
If you’re serious about providing your children some financial knowledge, have regular discussions about money with your children. When done in conjunction with an allowance system, you’re really giving them a great financial head start.
Riki Chan
Hi Mary,
I’m a high school student from Singapore American School and I’m taking a personal finance class. Your post is so interesting. I get an allowance with the Reward System, I do the chores and I get the allowance at the end of the week. It’s cool to see other system of allowance that other people utilize and the advantages and disadvantages of each one. But living in Singapore, many rich families give a lot of money to their kids and have a maid to do all the house work. I don’t think it’s a great way for kids to learn about money. Allowances is surely very important for a child’s development of the sense in money and to have a stable financial future.
Mary Deshong-Kinkelaar
Riki,
Thanks for your comments. You hit on a big point that I encounter when working with families: They want to implement an allowance system, but feel like they are being too strict on the matter because other families are not doing it. They’re allowing society to control their actions. I think many parents in this situation don’t realize the long-term problems they’re creating or they’re in denial because those around them are doing the same thing. Money maturity is an important life skill. Unfortunately, many people constantly struggle to achieve it.
Wishing you the best in your studies and keep me posted on your career progress!
Larissa
Hello, I am a high school student taking a personal finance class in Singapore. When I read your blog I thought it was really interesting how there were three types of way to pay children. Out of all the examples you had, the one that I thought was the best was the last one. I feel like paying your child to do tasks will help them to understand responsibility and the idea of working for your money. I think if my parents would have raised me that way, I would understand that money doesn’t just pop into my hands when I want it. Being in this finance class has helped me understand that money isn’t something just to throw away or not care about. If you have kids, how do you deal with allowance?
Mary Deshong-Kinkelaar
Dear Larissa,
Thanks for your comments and to answer your question, my daughter is just turning 5, so we are trying to phase this in. We started with a weekly gift allowance where she puts part in her piggy bank and the other in her “purse” and then, if we are at the store, she can use her money as she wishes. At first, we thought this isn’t teaching her anything as she often gravitated to junk purchases and had no problem spending everything in her wallet and asking us for extra…yes even at 5. We held firm and said, “no” to the extras. But after a few more weeks of trying, she seemed to get the idea that once it’s gone, it’s gone. As for the quality of her purchases, we’re still working on that:-) Regarding chores, we expect her to do certain things around the house without a financial incentive. The whole thing is a gradual learning process for the entire family. I want to reinforce that you can’t give up just because it doesn’t seem to work right away.
I’m glad to see you’re gaining a better understanding of personal finance. A concept I try to encourage people to recognize is that there are really three areas to consider: the practical elements (the knowledge of how personal finance works or “should” be applied) the emotional element (the understanding of how you behave with or feel about money) and finally the action element (the implementation of what you should do in a way that works for you so you follow through).
Some people learn the first part (which is great) but still struggle with money issues because they aren’t aware that their behavior or attitude about money is holding them back. The bottom line is, many people are in a financial fog. It’s great that you are getting a jump start on this.
Best of luck and report back on your progress!