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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