Teaching your child the value of a dollar (or maybe $5 when adjusted for inflation) is one of the great challenges of parenting.
Rather than having them constantly ask for money, many parents decide to give their children allowances in the hopes it will teach them how to properly spend and save. But is it really an effective way to teach kids how to manage money?
On a recent episode of LAist's daily news program AirTalk, which airs on 89.3. FM, host Larry Mantle asked Washington Post personal finance columnist Michelle Singletary for some tips on how parents can best use an allowance to teach their kids money management.
Don’t conflate money with chores
People’s idea of what an allowance is varies. Some define an allowance as payment for doing chores around the house, like washing the dishes or making the bed. Others view an allowance as weekly spending money, no strings attached.
Singletary said she lands somewhere in the middle, and cautioned parents not to use money as a reward for things that children ought to be doing anyway.
“Washing dishes, making their bed — [that's] being a member of the household. We need to teach children that you sometimes have to do things and you're not going to get money for it,” she said. “That is the price that you pay for being a member of this household.”
Singletary said it’s OK for parents to offer payment for a task that falls outside a child’s normal responsibility, or something the family would pay someone else to do, as a way for the child to earn a little extra cash.
“I'll offer my 24-year-old daughter, say, ‘Hey, I'll give you some money if you wash the car.’ Sometimes she does. Sometimes she doesn’t.”
An allowance is not just spending money
Although the impetus for many allowances may be to stop children from asking their parents to pay for clothes or the movies, Singletary said giving an allowance just to be spent can set a worrisome precedent.
“Here's the thing in our society: we are a very consumer-oriented society. We're teaching kids to shop and spend at too early an age,” she said.
Singletary said parents should first teach their kids how to entertain themselves without spending money.
“We're teaching them to be consumers before we teach them to be savers,” she said. “Handing them money all the time increases the opportunity for them to be consumers rather than volunteering in the community, for example, or attending a church program or a synagogue program.”
An allowance should have a lesson
“If you're going to give an allowance, there has to be a lesson with that,” Singletary said.
A way to ensure a lesson is being gleaned is by setting a few rules on how that money can be spent.
This is exactly what AirTalk listener Janet from Claremont did with her daughter’s allowance. Janet gave her daughter $28 a month, with 10% allocated to charity, 30% allocated to savings, and 60% left for her daughter to spend how she chose.
“That's how you do an allowance. You put it on the plate and then you talk to them about how it should be used,” Singletary said. “And I think that's the most effective use of an allowance.”
Singletary also recommended setting guidelines for short term and long term spending, and maybe even putting a certain percent aside to demonstrate how they would pay taxes in the future.
An allowance does not guarantee good money management
“I have not seen a credible study that sort of said definitively that an allowance will teach your child to be a better money manager,” Singletary said. “What I have seen in practice and in some studies is that they are watching what you do.”
Children are observing their parents’ spending habits, stress with credit card bills, everything, even if not verbalized, she added.
“That's what teaches your children how to handle money. So it's not the allowance itself that's important, by itself that teaches them. It's the lessons that go along with it,” she said.
So, whether you decide to give your child an allowance, make sure you engage with them in talks about finances — because they’re already listening.
