Tuesday, September 30, 2014
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Giving Your Kids an Allowance (Or Not)



Families have different philosophies about allowances, depending on their histories, values, and attitudes regarding money. Some parents require children to do regular chores to receive an allowance. Others believe all family members should do chores and allowances should be unconditional—kids automatically should get part of the family's income. Some don't tie allowances to chores, but do pay for extra jobs, like cleaning the garage.

Other parents don't give allowances at all, but dole out money as children need it. If you use the "dole" method, try tracking how much you hand out—you might be surprised.

Model good financial behaviors

But whether you give your children allowances or not, remember that they learn by observing. "The more conscious you are about what your behavior teaches children about money, the more effectively you'll model good habits," says Sharon Danes, professor and family economist, University of Minnesota, St. Paul. "If you're not paying attention, you may be teaching them things you don't want to."

When my sisters and I were growing up, our parents gave us $5 a week, no matter what. We didn't really talk about it—or talk much about money at all. When we reached college age, I, at least, bounced a few checks when I started managing my own money.

That's no surprise, indicates Lew Mandell, professor of finance emeritus and dean emeritus, University of Buffalo, N.Y., citing research that shows giving children a regular, unconditional allowance leads to lower financial literacy. Maybe even more significantly, it tends to reduce kids' perception of the intrinsic value of work.

If you use the "dole" method, track how much you hand out—you might be surprised.

"If you condition a kid to getting money without working for it, that kid will say, 'Why work?' " notes Mandell. "If kids earn their money, they tend to view work more positively."

Earning an allowance can be as simple as having to ask for it, rather than automatically receiving it. "They should at least have to do something unpleasant to get it," Mandell says. "Babysitting or working at McDonalds might start to look a lot better than having to nag mom or dad."

Look for teaching moments

But this assumes no discussion accompanies the payment of allowance. That can make a huge difference.

Just having money doesn't teach children how to manage it. Whether your children work for allowances or receive them unconditionally, look for teaching moments when you pay up. That way either method can help kids learn to manage money.

"By just handing over money without talking about the responsibilities and opportunities associated with it, parents miss an opening to instill values and educate children about the multiple purposes of money," says Philip Heckman, director of youth programs at the Credit Union National Association (CUNA), Madison, Wis. "It's really important to have those discussions, and they don't need to be big lectures; they can be normal, everyday conversations."

Give consistent messages, or children get very good at playing parents against each other.

He suggests looking for day-to-day situations that allow children to draw conclusions about money. "If they buy a cheap toy and it breaks, it's a chance for a conversation: 'You spent your money on that and now you don't have any for other things. Maybe you didn't give enough thought to the quality of the toy. Would you make the same decision next time?'

"You have to help them connect the dots," he says. "Kids need help understanding these things."

You also shouldn't protect kids from making minor mistakes. "Someone was selling a program where parents would give kids an allowance, but not actually the money, because they might lose it," says Heckman. "That doesn't make sense. You shouldn't keep kids from learning those basic life lessons."

Danes says it's important not to revoke allowances as punishment for misbehavior. "Then the child sees an allowance as discipline, not a money management tool. It would be better to restrict some other privilege."

And if your child asks for an advance on an allowance, don't dismiss the idea. "It may be a reasonable request—exceptional opportunities do come up," says Danes. "You can teach your child about loans, and interest. If they're old enough, children can present you with proposals. If they're younger, work through it with them on paper."

Just having money doesn't teach kids how to manage it.

Make the rules clear

In two-parent households, be sure you're both making the same teaching points. "Give coherent, consistent messages, otherwise children get very good at playing one parent against the other," Danes advises. "And involve kids in the decisions."

If you give allowances, your family needs to decide what things parents still will pay for and what the children will be responsible for. "And children must be aware of the rules so there aren't arguments later," says Danes.

That goes for nonroutine paid jobs, too. Heckman believes allowances shouldn't be contingent on doing chores, but that parents should offer payment for special jobs. "You have to be very explicit about the standards of completion," he says. "If they're cleaning out the garage, agree on what that means, such as moving everything into the driveway, washing the floor, and putting everything back."

Decide how much

With any allowance philosophy, there's no set amount that fits each child and each family. "It depends what you want your children to be responsible for paying," Danes says. "Figure out how much they need, plus some discretionary money so you have something to teach them about.

"Then think about how often you'll give increases and what you'll base them on," she continues. "You don't have to set the schedule in advance, but children are very concrete thinkers. Tell them, 'Next year on your birthday, we'll talk about it again.' It's helpful for them to know that it's just like you get raises at work."

"Figure out how much they need, plus some discretionary money so you have something to teach them about."

As kids get older, you can encourage them to set goals, Heckman notes. "They can track their progress and get the satisfaction of earning money and getting something they couldn't without saving."

It takes time and effort to teach kids about money. "But it pays off in the long term," says Danes.



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