In our LV Moms Money Mic series, we hand over the podium to people with controversial views about money and parenthood. These views are theirs, not ours, but we look forward to opening up the floor for discussion.
In the past, we introduced you to two writers who shared their differing views on whether it makes sense—emotionally and financially—to go back to work after having kids. One mom was a proponent of staying home after having kids, while the other explained how going back to work after having her daughter helped her keep her sanity.
In this post, Lewis Mandell, Ph.D., professor emeritus of finance and managerial economics and former dean of business at SUNY, Buffalo, explains why he believes giving an allowance can do more harm than good.
Experts will tell you that giving an allowance is a good idea. It makes a lot of sense … on the surface. But when push comes to shove, allowance is a very tricky area for parents to navigate. In my opinion, doing a less than perfect job can do more harm than not trying in the first place.
Generally, there are two ways to give kids an allowance: an allowance tied to chores, or an unconditional sum of money doled out each week, or month.
When an allowance is tied to chores, a kid is, in a sense, being "paid" for doing housework. In most cases, if he refuses to do his chores, he won't get his allowance.
When an allowance is unconditional, kids receive the money no matter what. Interestingly enough, the majority of parenting experts recommend giving an allowance unconditionally and not tying it to work around the house.
The argument goes like this: Kids are expected to do certain chores as members of the family. Those chores should be completed without having a dollar amount attached to them. They are simply expected. Meanwhile, kids need spending money as they grow older and do more things by themselves. A regular allowance is supposed to teach budgeting, responsibility, financial literacy and beneficial habits like saving and debt avoidance.
After reviewing the literature, I have found that, when given incorrectly, allowance is a terrible idea, across all cultures and time periods.
Why Allowance Can Be Harmful to Your Child
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%.
How Are You Teaching Your Kid About Money?
Do you give your child an allowance? If you do, is it tied to her chores?
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%).
Specifically, children who received an unconditional allowance knew much less than others about saving, spending and credit. They also tended to have a poorer work ethic: In the U.S., a study of 1,090 ninth grade students found that students who reported receiving a regular unconditional allowance in the ninth grade were less likely than other students to view work as a source of intrinsic satisfaction.
The 'Right' Way to Do Allowance
Perhaps the reason children who received an unconditional allowance scored so low is because it is much easier to just give kids money than to train or educate them about it. Parental involvement in, and commitment to, an allowance system is essential.
I think that allowance tied to chores is better than an unconditional one, but even that isn't the answer. After all, remember that children who received no allowance at all still scored better than those who received one that was tied to chores.
French author D. Lassarre wrote that the best strategy is to give allowances along with discussions of the family budget. According to him, allowance systems are effective only when they afford the possibility for discussions about finances within the family, such as why and how families make the financial decisions they do. And even then, the conversations could be effective on their own even without giving over the money.
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.
To sum up:
- Allowance in general does not appear to lead to increased savings or financial literacy. Children who receive unconditional allowances appear to be less financially literate than those who receive no allowance at all.
- If you do give an allowance, it should be linked to household chores. Speak with your children about money and the lessons they should be learning, like the purpose and rules of the allowance. Share your family’s financial constraints so your children don't see allowance as an entitlement.
- If you do allowance poorly, you're setting your kids to be worse off than if you didn't do it at all.
Although allowance isn't necessarily evil by nature, it can hurt your children unless you do it the right way. Since this requires such a delicate hand, my opinion is that it's just not worth the potential downside. The statistics speak for themselves.