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Sonoma Family Life Magazine

The Great Allowance Factory

By Tanni Haas

April is Financial Literacy Month, a great occasion to consider how you can use an allowance to teach kids important money management skills. What are the most important dos and don’ts when it comes to giving your kids an allowance?

Communicate clear expectations for spending, saving, and giving. Experts agree that if you want to teach your kids about the value of money and also encourage them to become caring human beings, then require them to divide the allowance into three parts: spending, saving, and giving. “This is an excellent way to expose them to the three most important things they can do with their money,” says personal finance expert Brad Munson, “and it’s a lesson that can last a lifetime.”

Come to a mutual agreement about how much money they are allowed to spend and how much they are supposed to save. Then find a charity that they truly care about. Susan Borowski, a contributing writer to the Money Crashers website, says that having kids “choose the charity of their choice will make them more likely to set aside the money. Just like we give to charities that matter to us, children also need to give to a charity that matters to them, or they won’t be motivated to do it.”

Use the allowance to inspire regular conversations about money management. Kimberly Palmer, the author of the book Smart Mom, Rich Mom (AMACOM, 2016), says to “worry less about how much [money] you give” kids and more about using the allowance as “a chance to talk to your children about money.” Personal finance expert Neale Godfrey, the author of more than two dozen books on financial literacy, agrees: “Talking to your kids about allowance and money is just as important as giving it.” Godfrey and Palmer are right: Research shows that the more kids discuss money management with their parents, the better they become at managing their own finances as adults.

Be consistent, but regularly review your allowance policies. Only change allowance policies if you have very good reasons to do so, like if you simply can’t afford the current amount or your kids are not spending it in the agreed-upon ways. As child psychologist Mary Kelly Blakeslee, PhD, says, “[N]othing bothers kids more than unfairness. If you change the rules without a good reason, you’re reneging on a contract. While children need to learn that life isn’t always fair, you can still respect your children’s feelings by explaining why you have to decrease their allowance or postpone payment, and by letting them know you can understand their annoyance or disappointment.” Munson agrees: Consistency “builds trust, reduces bargaining, and encourages planning for the future.”

Don’t use the allowance as punishment or reward. An allowance, says Munson, “is supposed to develop greater trust and better communication and cooperation, so using it as an unexpected disciplinary tool will just make you look cruel and arbitrary in the eyes of your children (no matter how much they might seem to deserve it). Find another way to make your point while living up to the original bargain.” Financial planner Nevin Martell agrees: Using money “as a yo-yo–‘I don’t like this or I don’t like that, so I’m going to cut your allowance’–is not going to help them form a healthy relationship with money.”

Similarly, don’t use the allowance to reward your kids for unrelated accomplishments. “Giving your kids money as a reward,” says certified financial planner Joseph Hogue, “establishes the mentality that you only need to do things if you’re getting paid.” Instead, suggests Hogue, “let them pick the family outing for the week or just tell them how proud you are of their accomplishment.”

Don’t tie the allowance to the performance of regular household chores. Tying the allowance to chores is wrong for several reasons: 1) It defeats the very idea that being part of a family entails that one has certain responsibilities; 2) it encourages kids to bargain every time you ask them to do something around the house; and 3) kids may stop doing their chores once they feel they have enough money.

Experts say to only offer your kids extra money for tasks you otherwise would have paid someone else to do like, say, mowing the lawn or painting the house. Godfrey suggests that parents carefully distinguish between what he calls “citizen-of-the-household chores,” for which they shouldn’t get paid, and “work-for-pay chores,” for which it makes sense to give them some extra money. 

Tanni Haas, PhD, is a college communications professor.