Parents can employ various strategies, including assigning chores, to instill a sense of responsibility in their children. The natural segue from chores is to offer compensation for the jobs that children are doing.
Allowances can provide foundations for parents to teach kids about working for a living. Kids are able to grasp the concept that money doesn’t come without hard work. Also, allowances paint the picture that one’s financial resources commensurate with the effort he or she puts in. Giving allowances also can help teach children how to manage money, plan ahead and make spending choices about what’s most important, according to the parenting guide Raise Smart Kids.
Allowances can be tough to figure out. For example, parents may not know how to determine the rate and frequency of payouts.
According to Lewis Mandell, a former dean of business at the State University of New York at Buffalo, giving a child an allowance, especially a regular, unconditional allowance that the child can depend on, isn’t the right way to approach allowances. Children may begin to view this allowance as an entitlement. Mandell’s research on teens in the United States, Canada, Europe and Australia found, without exception, that teens who received a regular unconditional allowance had diminished financial literacy, lower levels of motivation and an increased aversion to work.
But when handled properly, allowances can be important tools. Here are some additional benefits to allowances.
• They can provide incentive to get chores done.
• Allowances can motivate students to work hard at school.
• They can include a required portion to be donated, teaching kids the importance of being charitable.
Learning the correlation between work and compensation is a lesson that starts in childhood. Allowances can be an important part of kids’ early financial education.