Home > Personal Finance > Should You Give Your Children an Allowance? Two Experts Weigh In

Comments 0 Comments

When it comes to giving children an allowance, you might believe that all experts agree it’s the right thing to do—but that’s not actually the case. Believe it or not, some experts believe that more damage can be done by giving allowance the wrong way than by not giving it at all.

To help you make the right choice when it comes to your own kids, we decided to ask one pro-allowance expert and one anti-allowance expert for their input.

Read their responses and see what you think.

The Stance: Pro-allowance

The Expert: Neale Godfrey, personal finance expert and author of 27 books and financial literacy lessons for kids

CREDIT.COM: For starters, what would you say the main goal of giving an allowance should be?

GODFREY: Kids need to learn the natural consequences of money and that the only way you get money is to earn it. So that’s the first part of why allowance is important—understanding that the way you get money is to earn it. The other part is about teaching them to budget.

CREDIT.COM: How do you suggest parents go about setting up an allowance system?

GODFREY: I recommend setting up two types of chores in your house: citizen-of-the-household chores and work-for-pay chores. Kids don’t get paid for citizen-of-the-household chores. These are just meant to teach your kids to be good citizens of the house, and hopefully later of their communities. For example, in our house we recycled and my kids kept their rooms clean, and they didn’t get paid for those. On the other hand, work-for-pay, to me, are things like setting the table, loading the dishwasher, dusting, vacuuming, and doing laundry. But you are the CEO of your household, so you decide what are citizen of the household chores and what are work-for-pay chores.

CREDIT.COM: Where does the budget part come into play?

GODFREY: Parents should make this very visual and give young kids four clear plastic envelopes or jars to divide their money into. They can teach them that 10% comes off the top for charity and then divide the rest into thirds. The first 1/3 is quick cash (so you teach that if you work hard, it’s okay to spend a little bit of your money on things you want), the next 1/3 is medium-term savings (help them pick something to save for), and the last 1/3 is long-term savings. Parents should go to a bank and open an account and teach their kids about how real money goes into that.

CREDIT.COM: Any final thoughts when it comes to allowance?

GODFREY: Talking to your kids about allowance and money is just as important as giving it. I don’t support an entitlement program, but I believe you should give a set amount each week for chores so you can begin to teach them how to use it.

The Stance: Anti-allowance (to a degree)

The Expert: Dr. Lewis Mandell, professor of finance and managerial economics and dean emeritus, State University of New York at Buffalo

CREDIT.COM: Where does your stance on allowance stem from?

MANDELL: In the 2001 National Jump$tart Survey of U.S. High School Seniors, students were asked to describe the allowance that they received when growing up. Those who received regular, unconditional allowance had the lowest score in the test of  financial literacy, scoring, on average, just 48.9%. Those who were given money by their parents as needed scored highest at 51.9%, followed closely by those who received their allowance upon completion of specified chores at 51.6%. To shed some light on the surprising results, students were also asked about the frequency with which they discussed money matters with their parents. Those who said “never” scored just 42.5% on the test, while others had scores that were about 10% higher.

CREDIT.COM: So it stands to reason that talking with your kids about money is maybe just as important as giving an allowance, then?

MANDELL: Prior studies on the subject of allowances showed that giving a regular, unconditional allowance allowed the parents to minimize the interaction with their children. However, it is just this interaction that appears to be the factor most closely related to the financial literacy of their children.

CREDIT.COM: What should a parent’s main takeaway be from your opinion on allowance?

MANDELL: As long as giving an allowance does not diminish the financial interaction between parent and child, there’s nothing wrong with it. However, that is why giving children money as requested seems to be better than an allowance—at least the parent gets to learn how the child intends to spend it and can intervene, where appropriate.

The Takeaway

In the end, deciding whether or not to give an allowance to a child is something each parent has to personally determine. If nothing else, though, both experts agree that keeping the lines of communication open when it comes to money and finances is a key factor in raising a financially independent child.

Teaching your kids good financial sense doesn’t end with allowance, though. Opening a savings account for your child is a great motivator for them to do well financially, too, as is modeling good financial habits. As your children grow, set an example for how to stick to a budget, know about your credit score (which you can check for free on Credit.com), and more. Remember, it’s never too early to instill good spending habits.

Image: PeopleImages

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team