Speak with an experienced advisor! 801-495-9368Here at www.TERMLIFEIQ.com I get asked quite often, “should I pay my child an allowance?”
There are many views and philosophies on this subject. Actually, this is a very important topic as it relates to helping someone create Financial Independence down the road. There have been many studies done to see what the long term outcome is of children who had a regular allowance vs. those kids that didn’t have a regular allowance, but were paid money based on accomplishing a specified task or maybe a chore. I’ve even heard people or experts call this type of payment to a child a commission.
FOR MANY KIDS, MONEY JUST GROWS ON TREES. They don’t understand where money comes from; they just know how to spend it. First off, it is important to understand the best time for a child to learn how to handle money seems to be the pre-teen years. That’s not to say that helping kids who are younger shouldn’t be taught about the value of money because they should, but with a much simpler method. By the time a child is a preteen, he is usually responsible enough to keep track of money with a little help from his parents.
Some questions you might ask? Should I tie chores to allowances? One the one hand, you don’t want your child to think he can get something for nothing. On the other hand, you aren’t paid to clean the kitchen, or pick-up the family room, so why should your child be paid for tackling every day chores. When you run a household there are things that just need to been done which are part of daily living or family life. Everybody in the house makes dirty clothes that need to be washed. The same is true of the dishes that are used every day.
Something to consider, is when you tie chores to allowance, it can create extra work for you. For example, what do you do when a chore is started but not completed? Or when your child is heavily involved in school and after school activities or even if your child is sick and can’t get to his chores, what do you do?
Here are some other points to consider, if you think offering an allowance is something you would to do.
How much should I offer?
What expenses will my child be responsible for paying?
How can I make sure my child saves part of his allowance?
When should I stop offering an allowance?
These are all great questions when considering paying your child a paycheck for doing nothing!
Maybe a more progressive plan might be to offer a child a very small base allowance, combined with a chore-for-hire system? With this system you pay a very modest allowance, but your child can earn extra income by tackling bigger, not everyday type projects around the house, such as cleaning out the garage, cleaning the outside of the windows, organizing a closet, weeding a flower or vegetable patch, washing the baseboards, etc.
I read an article on the” allowance topic” a while back written by Dan Kadlec of Time magazine, who quoted a personal-finance scholar by the name of Lewis Mandell, professor-emeritus of finance and managerial economics at SUNY Buffalo. Mandell is a pioneer in the field of financial education and he recently said that ”paying an unconditional allowance is one of the worst things a parent can do for the personal -finance development of their kid almost akin to cruelty.” Mandell goes on to say, “in most cases allowance, as a tool for learning, just doesn’t work.” He notes findings from a series of financial-literacy assessments by the Jump$tart Coalition for Personal Financial Literacy.
These surveys show that high school students who receive a regular allowance test the poorest and exhibit the weakest behavior in personal money management. They are also more likely to be “slackers” as adults.
A well-known national radio show host suggests the following as it relates to paying a commission rather than an allowance when teaching kids about money stuff. He also recommends teaching kids about money as young as pre-school age and no later than third grade.
Start paying them a commission for chores they do around the house. Typically, one dollar per completed chore is sufficient with a list of five or six chores each week. Remember that each child is going to respond differently. Just keep evaluating your child’s maturity level and make sure their chores are age-appropriate.
Do not give them an allowance. After all, what are you making an allowance for? You don’t want to have the kind of kids who think that money grows on trees, do you? Don’t set them up for frustration and unrealistic expectations. And don’t miss the teachable moments that come when you give them a commission instead of allowance.
Send them off to work. Child abuse is letting a kid sit in front of a TV all day playing video games and eating junk food. Kids need to understand what a little dirt under the fingernails means. Delivering newspapers, mowing lawns, or working at a concession stand are some appropriate jobs they can handle.
I have been advising my clients for years that I think it makes more sense, to pay a commission for chores done rather than an allowance for many of the reasons I have included here.
Please contact me if you would like more information on the studies cited in this blog and for other financial tips for helping your children with money issues.
