Allowance Systems: Pros and Cons of Different Approaches

The Allowance Conundrum: A Guide to Navigating Different Systems

As a parent, I've always felt a bit conflicted about allowances. The idea of teaching my kids financial responsibility through a structured system seemed fantastic, but I also worried about the unintended consequences. Would an allowance create a sense of entitlement? Would it inadvertently teach them that everything in life is transactional? Or worse, would it trigger a battle of wills over chores and pocket money?

Navigating the world of allowance systems can be a minefield for parents. There's no one-size-fits-all approach, and the most effective strategy depends on your family's values, financial goals, and your child's unique personality and maturity level.

Over the years, I've delved into the research and practical advice surrounding allowance systems, and I've learned a lot. I've come to appreciate the nuances and complexities involved, and I'm excited to share what I've learned with you.

The Big Picture: Exploring the Pros and Cons of Allowances

The fundamental idea behind allowance is that it provides kids with a valuable opportunity to learn essential financial skills, such as budgeting, saving, and managing money responsibly. It allows them to grasp the concept of "money earned" as opposed to "money given", fostering an appreciation for work ethic. However, it's not without its downsides.

Here's a breakdown of the key arguments for and against using an allowance system:

Pros of Allowances:

• Financial Literacy: Allowances provide kids with a hands-on experience in managing their money. They can learn the difference between wants and needs, make choices about how to spend their money, and even experience the consequences of poor decisions.
• Independence: Having an allowance gives kids a sense of control and responsibility over their finances. It encourages them to think about their own financial needs and goals and to make decisions based on their own judgment.
• Understanding Consequences: By making their own financial choices, kids learn about the natural consequences of their decisions. Spending all their allowance early in the week might mean missing out on a desired purchase later, fostering a sense of delayed gratification and the importance of budgeting.
• Developing Values: Allowances can be a powerful tool for teaching values. For instance, encouraging your child to save a portion of their allowance for a rainy day or a future purchase can instill a sense of responsibility and the importance of long-term financial planning.

Cons of Allowances:

• Entitlement: If an allowance system isn't carefully implemented, it can create a sense of entitlement in kids. They might feel like they deserve money without putting in any effort, undermining the importance of hard work and responsibility.
• Pressure to Spend: Allowances might unintentionally encourage kids to spend their money quickly, potentially leading to poor financial habits. It's important to help kids understand the concept of delayed gratification and the value of saving.
• Undermining Family Values: Tying an allowance to chores can create a transactional dynamic, making kids feel like they are being paid for doing what should be considered a family responsibility.
• Inequities and Jealousy: If children see their friends receive different allowance amounts, it could lead to feelings of jealousy and resentment, especially if the system is based on grades or chores. It's essential to be transparent and consistent with your allowance structure to avoid these issues.

Choosing the Right Allowance System for Your Family

The ideal allowance system is the one that aligns with your family's values, financial goals, and your child's individual needs. Here's a closer look at the different approaches:

• No Free Money Approach: This system ties allowances directly to completing chores. Kids earn their allowance by performing tasks around the house, teaching them that money is earned, not simply given. This can foster a stronger work ethic and appreciation for the connection between effort and reward.

  • Pros:
    • Emphasizes the link between work and earnings, reinforcing the value of hard work.
    • Encourages kids to think about the value of their time and effort.
  • Cons:
    • Can create resentment if kids feel like they are being "paid" for doing chores that are part of their family responsibilities.
    • Might not be suitable for kids who are naturally motivated to contribute without monetary incentives.

• Dole Out Approach: This approach provides a set allowance regardless of whether kids complete chores. It allows kids to learn about budgeting, saving, and even giving to charity without linking allowance to specific tasks.

  • Pros:
    • Helps kids develop financial literacy and responsibility without tying it to chore completion.
    • Allows for more freedom in decision-making and teaches the concept of delayed gratification.
  • Cons:
    • Can create a sense of entitlement if kids believe they are entitled to money without working for it.
    • Might not be as effective in teaching the value of work and money earned through effort.

• Allowance Tied to Chores: This system offers a base allowance, but kids can earn extra money by completing additional chores. This can be a good way to balance the "no free money" and "dole out" approaches.

  • Pros:
    • Offers a balanced approach to earning money through chores and responsibility.
    • Encourages kids to take initiative and earn more by choosing to do extra chores.
  • Cons:
    • Can lead to a focus on money over the intrinsic value of helping out around the house.
    • Might not be suitable for kids who are not motivated by the potential to earn extra money.

• Allowance Tied to School Grades: This system rewards kids for achieving good grades, often based on a grade-based scale. This approach aims to reinforce the connection between effort and success, but it can be controversial.

  • Pros:
    • Encourages kids to strive for academic excellence.
    • Provides a clear link between academic performance and reward.
  • Cons:
    • Can create undue pressure and anxiety for kids, especially if they struggle with schoolwork.
    • Might be seen as manipulating kids to achieve better grades through monetary incentives.

Setting the Right Amount

The amount of the allowance is another crucial factor to consider. While some experts suggest the "$1 per year of age" rule, the best approach is to consider your child's needs, your family's financial situation, and your child's potential expenses. Keep in mind that the goal is to teach financial literacy and responsibility, not to simply give them a large amount of money.

Frequently Asked Questions:

1. What age is appropriate to start giving allowance?

There is no right or wrong answer. Some experts recommend starting at age 5 or 6, while others suggest waiting until kids are older and more mature. The best time to start is when your child can grasp the concept of money, and you feel confident that they can handle the responsibility.

2. What are the best ways to manage allowance?

• Jars: Using separate jars for spending, saving, and donating is a good way for kids to visually see their money grow and learn the value of budgeting.
• Apps: Allowance apps, such as BusyKid or iAllowance, can automate the process and offer features like allowing kids to donate to charity, making it easier to manage their finances.

3. What if my child is not motivated to earn their allowance?

Talk to your child about the reasons behind their lack of motivation. Help them understand the importance of earning money and the benefits of responsible financial decision-making. It might be helpful to revisit the chore system, adjust the allowance amount, or provide more opportunities for them to earn extra money.

Conclusion: The Power of Financial Literacy

The decision of whether or not to give your child an allowance is a personal one. But the most important thing is to remember that the goal is to teach your kids about money management and responsible financial choices. Open communication, setting clear expectations, and being a good role model for your child are key to making allowance a valuable learning tool.

By introducing your children to the world of money management early on, you can equip them with the tools they need to make informed financial decisions throughout their lives.