Moms Talk: Does an Allowance Encourage Financial Responsibility?

Providing an allowance on terms that work for your own family helps children become more financially savvy.

Kids and allowance can be a difficult combination. Simply deciding whether or not to provide an allowance doesn’t close the subject.  When? How much? Are there conditions? How can such a simple concept seem so overwhelming?

Because there are so many questions, a solid strategy is necessary to ensure the allowance process flows smoothly in your home. Luckily there are readily available resources we can turn to.

The National Council on Economic Education and the Northwestern Mutual Foundation partnered to create The Mint, a website that provides tools and information to help parents and educators teach children money management. The site outlines smart spending and saving habits and includes a detailed section on allowances. The Mint suggests parents initiate daily, realistic conversations with their kids about money and finances as well as review the money management example they set for their children. A recent Northwestern Mutual poll reported that 70% of US teenagers named their parents as the leading influence on the teens’ saving or spending behaviors.

Providing an allowance on terms that work for your own family helps children become more financially savvy. PittsburghParent.com notes “an allowance, along with the associated responsibility to pay for items and activities they want to enjoy, you can successfully help them to learn that money is a limited resource and to realize the benefits of budgeting it wisely.” Additionally, a predictable income allows children to make longer term saving and spending plans and lets them practice financial decision-making as their interests or opportunities change.

Knowing when to begin can be difficult. Rather than using age, The Mint’s “Allowances: The Issues” section suggests using your child’s knowledge of certain basic monetary principles as a guide. The child should not only grasp the value of different coins and bills, but also understand the concepts of spending, saving and giving to charity.

In our home, allowance is not tied to chores or grades. We expect all family members to pitch in on housework because we all live in and use the house. Extra work, such as dog washing or weeding the garden can easily increase each child’s total “paycheck.” Working hard in school is also a standard expectation not tied to allowances (though perfection is neither expected nor encouraged). Our first grade daughter gets $1 per week, and our 4th grade daughter gets $4 per week. They have few personal expenses that we don’t cover, and limited opportunities for impromptu spending. Each child gives a portion of their allowance to the charity or cause of their choice, some goes into savings, and the rest can be spent as they wish. As they get older, we’ll restructure both the amount of their allowances and the terms under which they receive it.

The Mint’s "Who's Allowance is This Anyway" page offers allowance budgeting guidelines. PracticalMoneySkills.com has a needs-based allowance calculator which can help. Talk with your partner and your children to develop a plan and amount that works well for your own family’s situation. As with so many parenting decisions, reflection is vital. Set a time frame to re-evaluate your allowance plan (or lack thereof) so everyone can try out the system knowing changes can be made if needed.

Teaching our children effective money management is a skill that will serve them well all of their adult lives. Some of the discussions and lessons may be hard to have now, but learning these lessons as a child or teenager can save them much heartache and hassle when they are older.

Bob August 18, 2011 at 12:41 PM
Great article. Allowance is such a sticky subject with so many people and if it is looked at as strictly a training tool as opposed to a reward or payment for chores, than it takes on a whole different meaning. Money is a life skill and needs to taught early and often. Check out FamilyMint.com for a number of additional articles on the topic of allowance and teaching your kids to be money-smart.
Jennifer Burrell August 19, 2011 at 12:03 PM
Thanks, Bob. I think that teaching our children how to effectively manage a budget is best taught early, and taught often!


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