Parents who offer their young children an allowance or pocket money are helping to introduce the concept of money at an age when they are susceptible to ideas they will hold for the remainder of their lives. It’s a good idea to allow kids to gain exposure to to concept and application of income and the decisions that need to be made surrounding that money. Introducing money-related concepts at an early age helps to reinforce the idea of financial literacy, a quality that many people believe is missing in the general public.

There are generally two ways to look at offering an allowance, particularly as children are gaining the ability to handle larger responsibilities. Allowances can either be tied to chores and used as a motivational tool to inspire help around the house, or they can be given free of any condition. There are dangers to both approaches.

Approach #1: Allowance in return for chores and help around the house. This is the favored approach for many parents because it emulates the experience their kids are likely to have later in life: they will be rewarded in money for the quality and quantity of the work they provide for someone else. I’m not a fan of this approach for several reasons.

• Helping around the house is not a job. A housewife doesn’t get paid for cleaning; a father who stays home to babysit take care of his own children does not get paid per hour. Helping around the house is something that everyone who can do should do simply because they are a member of the household. There will be more than enough time in someone’s life to earn money in return for work.
• This type of allowance glorifies money as a reward. Money is your “reward” for working for someone else as an adult, but without proper control in formative years, children could grow up thinking that money is the only reward for working. This type of attitude could lead the children as they mature to choose only those careers that pay high salaries or consider marrying only a spouse who comes from money. These things aren’t bad per se, and they are legitimate choices, but to focus on money at the exclusion of all other things that make life meaningful could lower their quality of being. With the correlation between money and work ingrained, money becomes a primary motivator. This can make it difficult for someone to succeed or excel at their job, because they might wonder why they would put in any extra effort if not compensated immediately.
• You become an employer, not a parent. The relationship between a parent and a child is unique, but introducing the idea that being a member of a household warrants a payment is a dangerous mangling of what should be a non-financial relationship. The power that a parent has over a child is now linked to the financial relationship rather than the familial relationship.

Approach #2: Money should be available, but not in return for working around the house. This invites childhood misconceptions. They may believe that money is available whenever they need or want, or that their parents will always provide money. Regardless, I believe this is the better choice as long as it is controlled and accompanied by guidance in terms of saving, spending, and giving responsibly.

All the guidance you could provide as a parent is good in helping children grow up financially literate. Even through teenage years, when children might be interested in getting a job outside of the house, children’s attitudes about money are still in formative stages. Any lessons you may impart will not be effective without good modeling. The best thing you can do for children is to manage your own money responsibly and let them see what’s happening behind the curtain. Take them with you when you go to the bank. Let them see the work you do for charity or encourage them to learn about the organization you’re involved with. Have positive financial discussions with your spouse without being secretive. If your experience with money isn’t positive, let your children see that as well.

I don’t have any children yet, so my opinions could change when my time comes. What are your thoughts about motivating children through an allowance? What approach works for you?

Photo: woodleywonderworks

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