The Allowance Question

As your child gets to a certain age, you might begin to ponder the question about allowance. When this question came up in our home recently, my husband and I asked ourselves the following:

• What is the purpose of paying an allowance?
• Should it be attached to household chores?
• Who manages the money?

We know that we both felt it was time to teach our child about money management, spending and saving. We felt that our child had gotten to the age where it was time to transition from giving into the “May I have’s” (when we felt it was prudent) to the “Well, do YOU have enough of your own money to buy what you want?” stage.

In my research, I found a variety of answers and wide range of diverse responses on the allowance question. We were able to make the decision that fits best with our views on how a family and household should work (and as this is new territory for us, I cannot know yet whether or not that decision is the one that will work for us in the long term).

I thought I would share my research with other parents, so families can decide what works best for them when they face this question.

Tip Jar – a child is given money based upon age (a young child may receive pocket change; an older child may be given dollar bills). The “tips” are based on work and merit. That is, a standard rate is placed in the jar for the child doing chores as he is told to do them, and a bonus is given if the child does the chores on his own (without being asked).

Here & There – a child is given a quarter here and there for good behavior, having a good day, doing various chores in the home, etc.

Chore or merit-based – a child is given an allowance based upon chores. This ranges widely as follows:

• Allowance for set chores in home
• Allowance for picking up after oneself
• Allowance for doing school work
• Bonuses earned for good behavior, extra work, not whining, etc.
• Allowance cut for misbehavior

No Allowance – this is fairly common; many parents feel that the home is shared and therefore all who live there are expected to clean up their own messes, regardless of any monetary incentive.

Extra Pay for Extra Work – in both the “no allowance” and “allowance” homes, children often earn extra pay for doing work above and beyond their normal chores. For example, they might be expected to keep their room clean and pick their toys up out of the living room in the normal course of things. However, to lend a hand with the laundry or washing dishes (if that is not one of their normal chores) would result in a bonus.

As you can see, there are a variety of ways to deal with allowance and household responsibilities, and some of these methods are often combined with others.

An interesting book on the topic is First National Bank of Dad by David Owen, which actually suggests setting up a “bank account” for your child to help teach money management. The premise of the book is that the parents run a “bank” for their child(ren), with simple terms and strong incentives to save (a generous “interest rate”). It also suggests giving the children the freedom to manage their own money and learn from their mistakes. This is also something to consider even if you handle the allowance very simply – as parents we must decide if it is it better to bite our tongues and watch children blow a few weeks’ of hard-earned money on something cheap, breakable, or that will provide momentary pleasure (such as candy), and to let them see that earning more money takes a while, or if we should manage their money with a strong hand until we think they are mature enough to understand the system of earning, saving, and spending.

There is also the FDIC Money Smart program, which is a free financial education program on CD aimed at youth ages 12 to 20. I tried to order it, however the order form does not accommodate APO addresses. I used the “Contact Us” link at the bottom of the FDIC website, which led me to a Customer Assistance Form, to express my disappointment and ask them to accommodate overseas military family orders. I received a response that they will be making this change to their website. However, if this is a program you think you would like to order, please do not hesitate to contact FDIC and remind them that there are more military families serving overseas who would like to be able to order it!

Hopefully each and every family will find the balance that works best for them!

Wendy, guest blogger