Kids And Money: To Give Your Child An Allowances Or Not

There are lots of hot button topics when it comes to parenting, and one that ranks pretty hot is whether or not to give kids an allowance. Money is sensitive issue for a lot of people, even within relationships, partners can sometimes disagree about how to handle finances. So it’s no surprise that it can be difficult for parents to decide what to do about allowances.

In general, there are 4 main schools of thought on the allowance topic:

there are those parents who give no allowance and instead pay for the things their children need and want;
there are parents who give a set amount not tied to any chores;
there are those who only give money for chores; and
there are those who take a hybrid approach, only paying children for some of the chores that they do.

There are of course important reasons behind each allowance method, and there are advantages and disadvantages to each.

When deciding which allowance approach to follow, much like with other parenting decisions, some parents continue with the approach their own parents used because they think it worked well, others choose to try a new method. Oftentimes, those who try a new method are the ones who feel like their parents did not prepare them well to handle money in the real world.

The Community Approach

Some parents feel that each member of the family should contribute to the whole and be provided for without qualification. These parents often believe it is their job to pay for the things that children need and want, sometimes having the children present a sales pitch as to why they should get the things that they want. In this type of no need for allowance approach, everyone in the family chips in to keep the household running. The thinking here may be that it is unfair to set children up to expect to be paid for taking care of their home and their things since that is not how life works for grown-ups.

While there are some advantages to the community approach – children learn to contribute to the family and the home, they learn personal and family responsibility and may learn to be persuasive - there are also drawbacks. The community approach does not teach children financial responsibility. If Mom and Dad are the ones who pay for everything, it does not give the children the opportunity to learn how to budget, how to save or build wealth, or the value of a dollar.

The Free Money Approach

In contrast to the community approach, some parents feel that children should be given a set amount of money each week or each month for the sole purpose of learning to manage money. These parents may require chores from their children, but their allowance is not affected based on whether they complete their chores.

Children whose parents use the free money approach will often learn a great deal about budgeting money, how to save for bigger items that they want, and often how to give some of their money away.

However, some believe that the free money approach sets children up to expect handouts and to not understand the value of hard work. Dave Ramsey, a financial expert, even compares this sort of allowance with welfare, and others remark that children who are given allowance with no strings end up being spoiled.

The Paycheck Approach

One of the more common approaches to allowance is to tie the money to chores. Some parents do this in an all-or-nothing way, you do all your chores and you get x-amount of money; some put a value on each job that needs to be done and children can earn more or less money based on the number of jobs they do.

The paycheck method is the most job-like of all the approaches. It has the advantages of teaching a strong work ethic, personal and family responsibility and financial responsibility. Many parents also incorporate lessons in budgeting, saving and giving with this method.

The disadvantage to this method, however, is that it could set children up to expect to get money for everything they do. This could become a problem when the children are asked to contribute in some way to the household without pay – they may decide that helping out just isn’t worth it if they’re not going to get something in return.

The Real World Approach

The final approach we’ll talk about here is the one I personally have decided to use with my own children, so I may be a bit biased in saying that I think it is the best of the bunch. The real world approach throws out the free money approach, and combines the community approach and the paycheck approach. With this method, children have certain family jobs that they are required to do without pay, and other jobs that they can choose to do to earn some money.

This approach prepares children for the real world. They learn that they are responsible for helping to take care of their home and contribute to their family, and they learn that hard work pays off. Many parents who use this method also incorporate lessons about budgeting, smart spending, saving and giving as well.

One disadvantage to this approach is that children could choose to neglect their “required” jobs in favor of doing the paid jobs. Some parents remedy this by only allowing the children to earn money on paid jobs after they have completed their required chores.

For our family, we have decided to follow the real world approach. Our children each have a “family jobs” list with the chores they are responsible for every day, and next to that we have a “for hire” board with a list of extra jobs with assigned values.

Once the children finish their required chores each day, they can pick as many of the extra jobs as they would like. On Saturday each week, we sit down and play bank, the children tell me the extra jobs they have done and I give them the money for each of those jobs.

We are also teaching our children to split their money into three categories - spend, save and give. They put a portion of their money in a piggy jar or their wallet and they choose how and when to spend it, another portion in an envelope to give to a charity, and the rest they put in a piggy bank to save (which gets transferred every couple of months to savings accounts we have set up for them at the bank.)

The most important thing to think about when deciding what allowance method you want to use for your children is - what do you want to teach them about money. Do you want to teach them that personal and family responsibility is most important? That financial responsibility is most important? Or that it’s important to balance your personal, family and financial responsibilities?