Allowance

Your Allowance System Makes Your Kid Lazy, Unmotivated and Bad at Managing Money

When I was little, I got an allowance. I bet you did, too. Funny thing is, I don’t remember what I had to do to earn it. All I remember is getting money from my parents to buy some of the things I wanted.

In my little 8-year-old mind, it was never a question of whether or not I was going to get an allowance…everyone I knew got an allowance. To me, that seemed like a perfectly logical argument that entitled me to some money. In fact, I bet that most parents have used the same logic at some point, asking their friends how much money they give their kids and considering when to start giving their own child an allowance, rather than if.

In general, allowance is a simple concept. Give a kid a finite amount of money for him to spend and he’ll develop solid money management habits in no time. Allowance should work well in theory (in theory, Communism works…in theory).

Personal finance experts tend to agree that allowance is a valuable tool to teach kids about money. I see this kind of advice over and over:

  • “Giving your kids an allowance will help your children become responsible adults.”
  • “An allowance helps children appreciate the value of a dollar.”
  • “Allowances give kids the chance to practice managing money at an early age.”

But now the entire concept of allowance is being challenged.

Enter Lewis Mandell, one of the leaders in the financial education field (a.k.a. researchers trying to figure out the best way to teach kids about money), who says that allowance is just plain bad.

“Allowance is statistically associated with diminished financial literacy, lower levels of motivation and an aversion to work.” (Click to tweet this)

Yikes.

Mandell’s research is challenging all those assumed benefits of giving your kid an allowance. In a national survey of high school students, children who received an unconditional allowance knew surprisingly little about saving, spending and credit. Children who received allowance based on chores followed close behind.

Here’s the kicker: kids who received no allowance had the highest scored the highest on basic money management knowledge.

The Entitlement Effect

I don’t remember being an obnoxious brat or begging my parents for toys (feel free to correct me if I’m wrong, Mom). At the same time, I certainly don’t remember working hard for any allowance I earned either. What I do remember is the moments I tried to earn extra money outside of my allowance, and what a disaster that was. There was little 8-year-old me, kneeling in the dirt in our back yard pulling weeds. I was dirty and cranky. If there was one thing I loathed more than anything in the world, it was pulling weeds. Getting my hands dirty, sitting on the ground for a whole 60 minutes, and barely seeing the results of my efforts was not my idea of fun (news flash: gardens look exactly the same when you’re done weeding). The payoff for an hour of manual labor was $20 – enough to subsidize a toy zoo set I’d been eyeing in a magazine. Easy enough, right? But ten minutes into gardening, and I’d had enough. I’d decided that I’d rather give up the extra money than subject myself to such brutal working conditions. Besides, I’d have my regular allowance to fall back on. My measly earnings would hold me over, and I didn’t have to do much to earn it.

Lesson learned: I already get money for doing nothing, so why should I do crappy work for it?

Editorial note: I did not say crappy as an 8-year-old. I do say crappy now. If I did have that word in my vocabulary as a kid, I would certainly use it to describe weeding. This is the entitlement affect, something that Lewis Mandell has alluded to in his research. If you’re getting an allowance for doing nothing – or even if you’re getting an allowance doing normal household chores that you should be doing in the first place – you’re more likely to manage your money poorly and develop a bad work ethic. Other personal finance experts reacting to Mandell’s findings generally agree. Liz Weston, one of the most-read personal finance bloggers on the web, had this to say on MSN Money: “Holy cow. As a parent who leans toward the unconditional-allowance end of the spectrum, I didn’t particularly want to hear what Mandell (and all the research he’s citing) pretty clearly states.” Liz, among other experts, advocates for kids participating in family chores with a clear set of expectations for how you earn money. But that doesn’t always work, even for the children of finance gurus. “I have to admit to seeing the entitlement mentality take root in our daughter,” said Liz. “The first time I heard her demand, ‘Where’s my allowance?’ I promptly instituted rules requiring her to finish her weekly chores before I paid up.”

Allowance – the Right Way

Chores for allowance? No allowance at all? If you’re confused, so am I…. so is allowance bad, or not? Generally, the concept of giving kids some money manage isn’t bad. The problem is the execution, and the conditions in which kids receive money from parents. Allowance can be a great way to help kids develop smart money habits. But some parents use allowance as an excuse to avoid talking about money. “You don’t just hand over $20,” Mandell said in a statement to the press. “You say, ‘Here are your responsibilities, and here’s why (we’re giving you an allowance), and here’s something about our financial situation. I know you’d like to get $30, but this is the best we can do right now.'” Allowance is a tool to support meaningful conversations about money, not a substitute for talking about finances with kids. (Click to tweet this) Bottom line: handing money over to kids without the right supportive conversations is flat-out irresponsible. And that can lead to a whole lot of irresponsible spending and borrowing later on in life. Setting up the right system of work and rewards for your kid now will make for one motivated, disciplined and un-lazy young adult in the future.

Questions for you all: Did you have an allowance growing up? Do you remember your parents’ allowance system? Did it have any impact on how you manage money now?

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6 thoughts on “Your Allowance System Makes Your Kid Lazy, Unmotivated and Bad at Managing Money

  1. Amanda

    Hi Stephanie

    I am 11. To me, “allowance” (which I don’t get) and “pocket money” (which I get) are two different things: allowance is for buying things that are not necessary and are just wants. Pocket money is for buying food in school.

    For me my parents give me pocket money weekly. I usually save about a quarter of it. Sometimes even half. I collect my savings in a piggy bank first and once the money reaches $50, I exchange the money with my father for a $50 note and finally deposit it in the bank.

    I rarely – almost never! – want to buy anything I don’t need that my parents don’t want to buy for me. If I did, I would ask my parents to help me buy the thing using my savings from the bank.

    The savings plus Chinese New Year money (tradition in my country Singapore)/the total in the bank are well over $2000 (almosf $3000), which is around US $1.5k to $2.3k (did I convert it properly?)

    So now, I have 3 questions:

    1) Is my definition of allowance and pocket money correct? What are your definitions? (Or is pocket money only used in SG?)
    2) What do yiu think of the saving system?
    3) What do you think about the amount saved (bearing in mind I am 11)?

    Sorry for the ultra long comment. I love writing. 😉

    Amanda

    Reply
    1. Stephanie Halligan Post author

      Hi Amanda,

      I’m glad you found this website! You have some great questions, and the fact that you’re being so thoughtful about your savings means you’re on the right track.

      1) The definition of allowance is different for each family. In general, allowance in the U.S. has the same meaning as pocket money in other countries like Singapore and England. Some families give allowance to their kids so they can buy things they need, like lunch, shoes, school supplies; some families give allowance to their kids so they can buy things they want, like toys; and some families do a combination of the two.

      2) You’re saving quite a bit of money! It sounds like your parents are giving you money to spend on food at school – so it’s important to them to use your money for that reason. Make sure that you’re getting enough to eat and not skipping out on a better lunch or a snack, just because you want to save money.

      3) I’m blown away that you have that much money saved up! Wow. Congratulations. The next big step is to decide what you’re saving up for. Is it university? Is it something else? Is it “just for emergencies?” The best part is, you have enough money to pick out multiple goals!

      I’m glad you enjoy writing – I like reading it, so keep commenting!! 🙂

      Reply
    2. Shade

      This is a great topic. I truly believe ficninaal literacy is the most undertaught subject in this country.Other books I would highly recommend are The Millionaire Next Door and The Millionaire Mind, both by Thomas Stanley (the former with William Danko). These are excellent studies on the millionaire population, especially the latter.Several myths are exploded by these books. #1 is that the three careers which have the least likelihood of making you a millionaire–that is, producing a net worth of over $1 million by retirement–are the three status careers, doctor, lawyer, professor.Most of the millionaires in this country actually live in small towns. Over 80% built their wealth in one generation. They own their own businesses, live in houses that cost less than $200,000, drive used cars, and for entertainment go to high school football games on Friday nights. Their defining characteristic is frugality.It’s an age-old formula: minimize expenses, maximize savings, invest in income-producing properties. Live below your means, and make your money work for you.Interestingly, many millionaires did not attend college. And those that did didn’t have high SAT scores or earn a high GPA. What they learned in college was social skills, how to read and get along with people. Which certainly explains the old saying, the A students go to work for the C students.The Millionaire Mind addresses this subject specifically. The problem with the education system and standardized testing is that it focuses too much on analytical thinking and not enough on creative thinking. The former is required for certain professions, but the latter is required for entrepreneurship.The ability to recognize a business opportunity and the courage to pursue it are what distinguish the self-employed from the employed. Most people go to school and make good grades so they can get a job and earn a comfortable salary. They are risk avoiders. Others go to school and make average grades, but they view criticism (from teachers and counselors) as motivation to prove themselves. They are risk takers.It isn’t easy going to work for yourself. It takes discipline, courage and faith. But the ficninaal rewards greatly exceed those from going to work for someone else.College is not for everyone, only those who intend to pursue a professional career. Most people, especially young men, would be better served by attending trade school and earning a license–a mechanic’s, a plumber’s, an electrician’s, an a/c repairman’s, a realtor’s license–then going to work for themselves. It’s far cheaper, takes less time, and most importantly you can enter the workforce much sooner and start making money.In real estate, there are three rules: location, location, location. In business success, there are also three rules: vocation, vocation, vocation. Choosing the right career–doing something you love to do–is the single most important factor in determining success.But sadly that is not the focus of our current education system, directing students toward careers that most suit their individual talents and abilities. Rather, K-12 schools and colleges have degenerated into indoctrination factories that push a liberal, multi-cultural, socialist agenda.The sooner the American people, especially parents, recognize that and demand educational reform from the ground up, the better off this country will be.

      Reply
  2. LB

    I only received an allowance for one year of my young life, but it was because of who I lived with and I actually liked helping around the house.

    I was brought up to ask if anyone needed help after I ate no matter how old and I was never gifted money, except for my birthday or Christmas. I never got toys just because except from my Grandparents once and a going-out-of-business sale.

    I learned that life is tough and because of that never started college right out of school. I am now starting college full-time and wish I went sooner, but I learned early on if you don’t have the money, you can’t purchase anything.

    Reply
    1. Stephanie Halligan Post author

      Great lesson that I wish more people took to heart – if you don’t have the money, you can’t buy it. I know that you learned that out of necessity, but it’s easy for people who have come across money so easily in their lives to forget that simple principle.

      Reply
  3. Alanna

    This is very interesting article as I have a 4-year-old I’m trying to work out all the chores/responsibilities and rewards/allowance. We got a responsibility chart and have 4 things he has to do each day (get dressed, brush teeth, clean room & bible study). If all are complete for the day he gets a token for that day. Those tokens will be used for toys or outings he wants to do (we haven’t figured out the value of the tokens yet). Once these responsibilities have become a habit for him, new ones will take their place. However, he will still be required to maintain those responsibilities. He was very excited to get the responsibility chart a few months ago. Now that we are finally using it properly it seems to be going well. Occasionally we also give him an extra token for behaving well under a difficult time for him, such as when he is required to sit still and quietly for 2 hours. My goal is for him to feel good about completing his responsibilities and to have those tasks become a habit for him. It will probably change by the time he’s in elementary school.

    However, when I was young my parents cared most about education so we were allowed to stay up as late as we want, if we were reading. So when it came to allowances it was similar. We got paid per grade. In elementary school we received $5 for an A, $3 for a B, nothing for a C, we had to pay my parents $3 for a D & $5 for an F. So you really wanted to do well. I usually had all A’s and a couple of B’s occasionally. The value for the grades went up a lot in high school. But, my parents still gave us money as desired through out the year as they had available. I defiantly cared about my grades through middle school.

    Reply

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