Growing up, several of my friends received allowances but my siblings and I never did. My parents felt that simply handing over money on a weekly basis–for us to fritter away as we saw fit–would spoil us and give us a sense of entitlement. I never had much problem with this as I saw just how quickly some of my peers spent their greenbacks on candy, cheap toys and comics.
Now as a parent, I’m forced to think about allowances again, this time on the other side of the issue. I must say rather like the idea provided parents use it as a teaching tool, not just a weekly handout. Here are the pros and cons as I see them:
Pros of Giving Allowances
Kids get the opportunity to be in charge of some money and learn how to save, spend, invest and give their allowance money. I like how Trent at the Simple Dollar gives his kids an allowance (two quarters per year of age, thus a four-year-old gets $2 a week) that they divide into jars. Keeping the money out, rather than in the bank, allows them to watch their money grow week after week. Requiring kids to set aside a certain amount for a big purchase (a bike, iPod or new clothes) helps them prepare for the future when their big purchases have a few zeros on the end of the number.
Also giving them an allowance lets them manage their spending money however they like: if they want to blow $20 of their saved up spending cash in ten minutes’ time playing vending machine games at the supermarket, let them. It’s much easier for them to recover from this $20 mistake than a $2000 one when they max out their credit card in college.
The Cons of Giving Allowances
When parents just dole out the money, without so much as suggesting the kids think about how they want to spend it, or what they’d like to save up to buy, an allowance ends up quite meaningless. Kids who are simply handed money may not easily understand the concept that their parents have to work to earn that money. If there’s little or no instruction on basic money principles, kids may get caught up in the kid equivalent of “paycheck-to-paycheck” living. Not having any savings goals–like buying a new tutu or a video game–allows kids to just spend all their money as they acquire it.
What’s your stance on allowances and how do you handle the situation with your kids? Share the details in the comments!