Like any group of parents, the folks at our office share our parenting successes and commiserate about our failures. Opinions vary on most parenting topics, but there’s a solid consensus around here about the benefit of giving kids an allowance.
It turns out there’s some pretty good data to back it up; not only can allowances improve kids’ financial savvy, but it can also help a parent’s financial plan. Here are a few of the upside benefits and suggested strategies for implementation.
What’s in it for the kids?
A taste of real life in an environment where mistakes can be made and lessons can be learned, including:
Setting personal priorities. When money belongs to you, it’s a lot easier to distinguish between your wants and needs. Children must consider how to value each purchase – when to pull the trigger and when to pass.
Promote self-reliance and discipline. Without a parental entity dictating whether their discretionary spending desires are met, kids are forced to take full accountability of their financial choices.
Teach basic financial responsibility. With a new level of personal freedom, the question turns from “What do I want?” to “What should I do with my money?” An allowance introduces kids to the decisions behind spending. saving, budgeting, donating, and even investing.
Fostering other favorable traits. As we dissect below, allowances can also go hand-in-hand with chores which have their own positive lasting impacts. An effective chore system can lead to greater compassion, emotional health, familial connection, and even success in early adulthood.
What’s in it for you?
Allowances provide ongoing opportunities to instill financial responsibility into the fabric of your daily routine. Teachable moments that flow naturally from the experience:
Create a healthy, ongoing dialogue. Save your family from treating money like a third rail issue. A regular allowance means there’s a regular opportunity to talk about money, money’s worth, values, and priorities. The sooner you start talking about it, the more natural money conversations might be for the rest of your lives. It’s not how much money you have, but what you do with it that matters
Model Good Financial Habits. You’ve described the differences between wants and needs. You’ve described the importance of saving and philanthropy. Now you can narrate choices you make on a daily basis and everything that goes into making choices with more profound financial consequences.
Save Money & Aggravation. If find yourself acquiescing and buying your child unnecessary items more often than you wish, an allowance can shift the onus to your child by requiring them to decide if a discretionary expense is really “worth it.”
Best practices
We here at Boston Standard have read the research, spoken to parents, and mulled over various ideas in the kitchen. Here’s what’s resonated and worked for with us:
- A nuanced approach to balancing allowances and chores. This article does a nice job of outlining the pros and cons of unique allowance systems. You might at least consider the approach detailed at the bottom, which combines mandatory chores with allowance incentives to optimize both familial harmony and financial education. It’s worth noting that there is some disagreement about the wisdom of attaching allowances to chores, so give some thought to the best approach for your family.
- Consistency, consistency, consistency. Building up solid financial habits in your kids inherently relies on a certain level of commitment from the parent. Set a system, establish a schedule, and stick to it.
- Find the right balance. Many potential benefits are lost if you give your children more money than they know what to do with. Consider starting with a sum equal to their age in dollars given weekly. Be clear about what you will buy for them moving forward (necessities) and what they will have to buy for themselves (any non-necessity, unless birthday/holiday-related).
- Take advantage of technology. This doesn’t have to be yesteryear’s allowance of old coins and crumpled bills. You can set up a shared bank account to easily transfer funds and monitor activity without the hassle. For those with older kids, consider prepaid debit cards with customizable mobile apps.
CliffsNotes:
- Allowances can greatly benefit both kids’ and parents’ financial futures
- Setting up an effective system requires careful planning and sustained commitment
- At the end of the day: We know allowances can be tricky to implement, and even difficult to discuss. So we’re starting the dialogue and we hope it helps you do the same at home
