If you’re undecided about giving your child an allowance, there’s good reason to be. But before you make a decision, it’s best to list down the advantages and disadvantages first.
1. A lesson on financial basics
Use their allowance to educate them on financial-responsibility by teaching them how to budget and save.
Even if all the allowance was spent on junk food, it’s okay. They will learn the consequences of their actions when their pockets are empty. It’s also a good time to teach them how to manage the consequences of poor financial decisions.
2. A chance for kids to earn money
In order to learn the relationship between work and pay, parents may tie allowances to chores so they understand that they have to work for money.
Helping your child understand the correlation between work and reward will do wonders for their future careers.
3. An opportunity to learn from mistakes
Your kid will make a lot of mistakes when handling their new-found “wealth”. Sounds like a drawback? Not exactly.
It’s better to make mistakes while young and in a low-risk setting. Mismanagement of money by spending it all at a video game arcade is better than making a blunder in the stock market as a young trader.
4. A lesson in budgeting and saving
When kids get an allowance, they can buy anything they want, including expensive toys. In this way, they don’t have to ask for money every time they want something.
If the money dries up before month-end, then they have to make do with less or nothing. Or, get a loan from their parents. Giving them a loan is a good way to teach them about credit and interest.
Budgeting is a balancing act. Use their experience at over-spending to illustrate the principle of “needs and wants”, delayed gratification and “spending within your means”. In times of limited funds, practise restraint and frugality.
5. A chance to understand the relationship between working hard and being rewarded
Using their allowance as a reward system for getting good grades in school could help your kids gain acceptance into a good college or get a scholarship.
Working hard is a habit. So, train your children to put in the effort on every endeavour. This habit will stay with them forever. The reward may be in the form of promotions, new titles, recognition, prizes, or appreciation.
6. Helping the less fortunate, if financially able
Compassion towards the less fortunate is a good trait to instil in children. Suggest they use part of their allowance to buy food for the underprivileged.
By cultivating a philanthropic mindset, kids will appreciate the joy of helping the poor and not using all the money on themselves.
1. Allowances may be seen as an entitlement
If kids always receive financial rewards to perform chores, they may become unwilling to help around the house for free. This perceived privilege/entitlement will move to other areas of life and may create chaos in your household.
Experts also find that kids who receive daily allowances often see it as their right. As a result, they will be less financially literate and less motivated to work.
Point out that while it is right to expect payment for a job done in the working world, in a household, every member must pull their weight. Kids must realise an allowance is a luxury, not a necessity.
2. Money can easily become the only motivation
Money should not be the only incentive why kids do household chores. It should be more about being responsible about maintaining safe and clean living quarters.
It’s wrong if they start to think the only advantage of cleaning up is getting paid.
3. No guarantee your kid will be smart with money
If you don’t tie a lesson to your action, giving your kid a reward will not help them understand money.
Do your kids a favour and teach them age-appropriate money lessons every time they receive an allowance from you.
4. Chores may be seen as a work-for-money task only
If kids receive money for tidying up their bedrooms, helping cook dinner or doing the laundry, will they expect to get paid for keeping their college dorm clean?
Parents must teach their children about the need to do housework. It’s the collective responsibility of every family member. The question of a money rewards should never arise.
Impose a penalty for incomplete chores. If some family members do not understand or violate the rule of teamwork, others must take up the shortfall.
5. Parents have no control over how allowance is spent
Some parents wish to have better supervision over what their children purchase using their allowance.
Parents rather approve each acquisition and pay for it themselves than hand over this authority to their kids.
6. Parents emphasise too much on the money aspect of an allowance
When there are too many requirements for earning an allowance (good grades, doing chores, being obedient) kids may think they should be compensated for everything they do right.
If receiving money is a child’s only motivation, they may never cultivate an appreciation for the value of anything without a monetary reward.