The Great Allowance Debate
When I decided to start giving my kids money, I thought this might be the one parenting issue with a right answer. Surely there was a foolproof money system that would teach kids to be responsible and financially savvy.
Turns out it's not so straightforward. There are two main approaches to paying kids. The first approach is an allowance system. Kids are paid a set weekly or monthly rate, independent of chores or other qualifications. The second approach is a commission system, a work-for-pay system wherein kids are paid for doing chores and making other contributions to the family. (For detailed examples of each system in practice, go to "How Lisa Teaches Kids About Money" [allowance] and "How Sarah Teaches Kids About Money" [commission].)
Then, of course, there's a third option—not paying them at all.
So which system is right for your family? To help you figure it out, here's a mock debate between the three options, using arguments from financial and parenting experts:
Welcome to the Great Allowance Debate. After brief opening statements, each side will have the opportunity for a rebuttal. We'll then move on to the question-and-answer segment of the debate.
Opening Statement: Allowance
Teaching kids about money should be its own system, independent of chores. Children should not get paid for cleaning up after themselves and doing basic chores to contribute to the family. "Chores are best viewed as an essential aspect of family citizenship. " (Wendy Mogel, The Blessing of a B-) When your children are adults, there won't be anyone handing out cash at the laundromat and telling them what a great job they did separating their whites and colors.
Kids need to learn that the work we do in our homes has intrinsic rewards, like contributing to the well-being of your family, and a sense of accomplishment. You give kids money to teach them about money, not as an incentive to help out around the house. "Allowance ought to stand on its own, not as a wage but as a teaching tool that gets sharper and more potent over a decade or so of annual raises and increasing responsibility." (Ron Lieber, The Opposite of Spoiled)
The objective here is to teach kids how to use and manage their money, so they'll become responsible adults. "By practicing with their own money, children can try out concepts—saving for a rainy day, prioritizing goals, and delaying gratification—that might otherwise seem abstract or irrelevant." (Lisa Hoelzer, Betterwayparenting.net)
Opening Statement: Commission
In the real world, people get money for doing work. When we pay kids for doing chores, we're teaching them a basic principle of economics. Rachel Cruze, daughter of financial guru Dave Ramsey says, "From age 5 on, I operated on one general rule about making money: work, get paid; don't work, don't get paid." (Smart Money, Smart Kids)
Paying for work also teaches kids the principle of ownership. "When we work...we feel the ownership that causes us to value something, to take pride in it, to take care of it....True ownership is the antidote to entitlement and the prerequisite to responsibility." (Richard and Linda Eyre, The Entitlement Trap)
We're not doing our kids any favors by teaching them they can get something for nothing. "Handing out money and not teaching strong work habits create people who whine, who feel entitled, and who become perpetual victims." (Ramsey, Smart Money, Smart Kids)
Opening Statement: Nothing
The best way to teach kids about money is not to give it to them at all. "Studies have shown that instead of encouraging good financial habits, giving an allowance is statistically associated with diminished financial literacy, lower levels of motivation and an aversion to work.
"According to the 2000 Jumpstart Coalition survey "Improving Financial Literacy—What Schools and Parents Can and Cannot Do," 35% of the total respondents, American high school seniors, received an allowance based on chores, and 10.5% received an unconditional allowance.
Those who received no allowance had the highest mean financial literacy score of 52.5%. Those who received an allowance dependent on chores followed closely, at 52.1%.
But those who received an unconditional allowance—in other words, those children who parenting experts say should have the best money habits—had the lowest rates of financial literacy (49.1%)." (Dr. Lewis Mandell, "Why Allowance Does More Harm Than Good," learnvest.com)
And giving kids about money at a young age isn't really teaching them how to manage money. Amanda Roos, a mom and writer says, "Because my kids are little, my husband and I provide for all of their needs. This means the only things my 7-year-old spends his money on are “wants.” Unfortunately these wants are mostly created from commercials and product placement. In short, junk. When he took his birthday money to the dollar store, he was determined to spend his money — on anything. All he’s learning is Consumerism 101: The important thing is not what you buy, it’s that you buy." (Amanda Hamilton Roos, "3 Reasons I Don't Pay My Kids an Allowance," powerofmoms.com)
If you give your child money, starting at a young age, they can learn from mistakes when the stakes are relatively low, with small consequences. Expecting them to start learning about money when they're already an adult is setting them up for failure.
As for the commission argument, "I don’t think there is any child who will grow up thinking that money comes for free forever. This is just not a legitimate concern. If you instill a good work ethic in your child he will continue to work hard at whatever his current task is: family chores, school work, college work, or his professional job. Children are smart enough to realize the difference between a weekly allowance from mom and dad and money they will need to earn as an adult.
"Tying work to allowance doesn’t give the child a better work ethic. Sometimes it can even cause the opposite—the child can consider whether the chore is worth the money, and possibly decide it’s not. In that case, he doesn’t learn to work and he doesn’t have any money to spend." (Hoelzer) It's a lose-lose situation.
Even the word allowance is problematic. "It implies that a child is 'allowed' a certain amount of money just for living and breathing. Sure, every parent likes to bless his or her child with surprises and gifts, but the allowance system as a general rule doesn't teach the child how real life works." (Dave Ramsey, Smart Money, Smart Kids) Money should never be just a handout.
In The Entitlement Trap, Richard Eyre talks about waking up on a Saturday morning (payday) by his kids knocking on his bedroom door They were chanting, "Give me my money!" He said, "It occurred to me in my sleepy state that the whole scene looked a little like a welfare office. These kids were lined up for the dole, and I had just opened the window." His kids were learning entitlement, not responsibility or ownership.
We agree with the Allowance group about the importance of teaching kids money skills when they're young. "As a person earns, obtains, and takes care of something that belongs to him, he develops self-esteem, self-discipline, self-confidence, self-motivation, happiness, and good judgement." (Eyre)
Paying kids to do chores is not the real world. In fact, paying kids at all is not the real world. In the real world, you get a real job if you want money.
Sarah's dad lost his job when she was 12, and they scraped by with minimal necessities. She started babysitting and doing odd jobs to pay for most of her own clothes, shoes, and any extras. She worked all through high school at ski resorts, grocery stores, and a catering company. She also worked at a dance studio so she could take lessons there. She later paid her way through college. That lesson was effective and free.
But you don't have to lose your job to teach this lesson—you just have to stop giving your kids money. Then, when they're old enough, have them go get a real job. According to Mandell, "We do know that having a job is positively related to financial literacy which, in turn, is positively related to self-beneficial financial behavior. " ("Child Allowances—Beneficial or Harmful?" lewismandell.com)
Until then, "Letting a child work alongside you as you create your family life is a better motivation them sending them off to wash windows for a quarter. For most of their lives, my kids are going to bombarded by external motivations: grades, trophies, honor rolls. I want them to first learn at home that we do things well because we want to do our best regardless of who is watching and rewarding." (Roos)
We've now reached the Q&A portion of the debate. The first question is for you, Allowance. Do you pay your kids for any work?
Yes, we still pay money for extra chores that go above and beyond basic housekeeping and picking up, for example, vacuuming the car or washing windows.
And Commission, do you pay your kids for everything they do in the house?
This is actually an area in which we can find common ground. Like Allowance, we also pay for extra chores in addition to their regular paid chores. But there are also some chores that we expect our children to do just for being part of the family. For some of us this is helping with the dishes; for others it's requiring kids to keep their own rooms clean.
How about you, Nothing? Do you pay your kids anything at all?
Nope. Sometimes they get money as gifts, but otherwise, they get to live at our house and eat our food, but they don't get cash.
"I have no problem with my kids working for someone else. I gladly pay our neighbor’s kids to house-sit our cats and would welcome an opportunity for my kids to do a similar job. Because that’s what it is: a job. Our family life is not a job; it’s a workshop for building the kinds of people who will do hard work and make wise decisions, independent of the money involved." (Roos)
Allowance, how do you motivate kids to work if they're not getting paid?
"Sometimes parents want to tie chores to allowance because they feel it gives them more leverage. They have something to hold over the child’s head to motivate him to work.... The better way to get children to complete their chores is harder and takes more time: talk to them about the importance of all family members pitching in, compliment them when they complete their chores, stay with them to ensure they are done, be firm but kind in insisting the work is done." (Hoelzer)
And if that's not enough, "[t]here are plenty of other privileges we can withhold if kids aren't eating their chores done in a timely fashion. (Driving that new car, for instance.) Taking away money, which is a tool for learning, need not be one of them." (Lieber)
Allowance and Commission, what are the logistical differences between your two systems?
Allowance: This is where we have a distinct advantage. We set an allowance, usually based on age, and then pay the same amount every week or month. It's easy to keep track, and we always know what to pay. Most of us correlate the amount of money to the child's age, or their grade in school. So we might pay our kids one dollar per grade, per week, or one dollar per year of age, per week or month.
Commission: Yes, your system is easier, but our system offers more accountability. If you're not paying your kids to do chores, you still have to construct some way to track whether they're doing it or not. Our system just consolidates the two systems. We track what the kids do, then compensate them accordingly. Some parents give a certain amount of money per day that all chores are completed; some pay for individual chores.
Do you have anything to add to the logistical discussion, Nothing?
Logistics is where both the allowance and commission systems usually break down. Parents intend to teach their kids these great lessons about money, but they get too busy or become inconsistent. "Unfortunately, very few parents today (even the well-meaning ones!) have the time, patience, expertise and willingness to have the correct conversations with kids. So, allowance continues to be mishandled. Given the choice between a mishandled allowance and no allowance, I'd choose no allowance every time." (Mandell)