SHOULD YOU PAY YOUR CHILD AN ALLOWANCE?
It’s important to teach your children good financial habits, even if you don’t feel you have them yourself. Experts and child psychologists are divided as to whether or not allowances are beneficial for children.
When the experts disagree, how do you know what to do?
Here are some advantages and disadvantages of giving your child an allowance.
Pros of allowances:
Allowance is an opportunity to teach kids about money. It gives you a chance to talk about saving, investing, and spending money wisely.
Allowance can teach kids about earning. When allowance is tied to chores, kids learn that money isn’t free. It requires work to earn. Earning their own money can help kids learn to value it more.
Allowance helps kids feel empowered. When kids have freedom to spend some money how they choose, it can help build their self-esteem.
Allowance motivates kids to action. Are your kids slow to do their chores? Adding a financial incentive can help them complete their household responsibilities.
Cons of allowances:
Kids might refuse to help unless they receive money. Ask your kid to grab your jacket and you might hear, “How much will you pay me?” It can be confusing when some actions lead to a payday while others do not. Your child still has an obligation to the family, but an allowance can cloud this understanding.
Parents lose control of purchasing decisions. If your child has their own money, they could spend it on things you may not approve of.
An unconditional allowance leads to worse financial literacy. Studies have shown that kids who receive allowance without being required to work for it tend to make worse financial decisions than kids who don’t receive any allowance. Unconditional allowances are a bad idea.
Before deciding whether and how to do an allowance, be sure to discuss it with your spouse. Consider the impact allowance would have on your family budget. Determine your ground rules and expectations, and then discuss it with your kids. An allowance could be a great opportunity to have a cleaner house and teach your kids good habits.