The problem with allowances for kids at Catch a Gideon

October 20th, 2006 by digerati

Justin McHenry writes on The Personal Finance Weblog about giving his kids an allownce. He brings up a number of issues including: how much to give kids weekly, how much to increase this as they get older, should you tie payment to chores or just give it to them…

This article at Plain Dealer talks about the same issues.

I think there is an entirely different problem. I don’t want to go into when kids should get an allowence at all. I don’t have kids and don’t expect to for a while. But it seems to be when you simply give money to kids they will simply spend it all,
both because they know they will get more next week and also because the money is entirely disposable income, they have nothing they have to spend on to maintain their lifestyle.

I don’t think the money should be tied to chores unless you are giving the kids an option to do more chores for more money. If you give them the money even when they don’t do the chores you’re setting a bad example. Also, kids will expect to get the money regardless. I think it’s a better idea to teach them they can spend their own money on things they want, and also that it is important to do chores. (I also think it’s not a bad idea to teach them that they can do more work for a bigger benefit.)

So generally the whole model is flawed. My experience was that I got money (5 and then 10 dollars a week) regardless of if I did the chores, but my parents tried to tell me it was conditional on doing the chores. Occasionally they wouldn’t pay me when I hadn’t done something around the house, but that was rare. I remember feeling entitled to the weekly amount regardless of what I had done to “earn” it. Also, it was rare that I needed to use my allowance money to pay for things myself. It was used mostly when I wanted to buy things my parents wouldn’t pay for: a “cooler” brand of shoes for instance.

I think it would be better to teach kids to be responsible for their own spending. I don’t know at what age this idea might make sense (any parental experts reading?). What if you determined the cost of many activities your kids did during a month and gave them the amount of money to cover it, plus a little extra? You can gradually add categories to what your kid is responsible for.

Here’s an example. Say you spend an average of $15 per week on lunch for your son, plus $10 per week (avg) on clothing. You also decide that you spend $8 per week on entertainment for your son. Currently, most parents pay all these costs directly ($33 dollars per week) plus say $10 in allowance ($43 dollars). What if you gave them the $43 dollars and taught them to budget these other costs? The net difference to you is nothing (you’re paying these as a parent anyway).

The advantage is that you are really teaching your kids to budget effectively, and learn the value of money. Some things kids will learn:

the value of money
how much things really cost
that spending on one thing means they can’t spend on another

It took me a lot longer to learn these things because I simple expected the money I got plus all the things (clothes, bikes, soccer club fees, etc) and didn’t know what they cost. Had I had to learn to budget the money and also learned the actual costs of living I’d be better off. It is likely that kids will screw up occasionally. They might spend all their lunch money on new shoes. I’m not saying you should’t help them out when they get stuck (getting stick is part of the learning process), but if they missed lunch one day because they budgeted incorrectly they would learn because of it. If you never give them the opportunity how will they learn?