Piggy Bank Politics

An allowance is one of the joys of childhood.

Free money! Every week! Until I’m 18!

For parents questioning the wisdom of shelling out, don’t despair. The giving of allowance is a time-honoured practice that can result in an appreciation of money, financial literacy, and a degree of independence and responsibility.

First, the matter of amount.

There are a variety of methods to calculate allowances, such as 50 cents per year of age, or a dollar per grade level.

You’re chosen calculation is less important choosing an allowance that is consistent, regular, and feasible. The amount might depend on whether there are conditions on how it’s spent.

Yes, benefactors can set parameters.

Money experts recommend that a portion of allowance go towards savings, a second towards donations, and the remainder may be spent or saved for a larger purchase. Some also recommend an investment pot.

Even if you don’t hold fast to these categories, there should be responsibilities associated with spending that money. Younger kids might have to buy their own treats or a gift for grandma; teenagers might be responsible for all their own clothing.

The matter of linking chores to allowance is a tricky one.

On one hand, children should accept that chores are a household responsibility; getting paid for chores undermines this concept and makes them optional. On the other hand, paying money for chores gives value to work and mimics real life.

Most writers on the subject agree that linking allowance to chores must be done carefully, if at all. You could end up with a child who negotiates every small task, or a child who declines to do chores altogether. At worst, it becomes just one more source of conflict that families don’t need.

A popular moderate approach is to require a minimum level of household chores. Allowance is provided unrelated to these chores. However, certain additional tasks may be eligible for payment.

Pippa Beck, mother of two, once paid a nickel for each dandelion pulled.

“My son cleared me out. He went on a frenzy and I was paying $12 for dandelions. I had to reduce my rate to a penny.”

A key to allowance is understanding your objectives.

If you merely want to give your kids some spending money and stop them from pestering you, a simple payment with some parameters is probably adequate.

If you’re using allowance as a vehicle for creating financial literacy, merely providing the money isn’t enough. You still have to educate your child about good purchasing decisions, credit, and savings.

Beck says, “I talk to my kids about money often. They don’t know how much I make, but they know that we have to go into debt to get the house fixed up to rent out and, that my husband hasn’t been working.”

So when her kids ask for things, they understand the broader financial context of their request.

“I also talk to him often about credit cards and how they work and how Canadians get into trouble using one to pay off the other. I’m hoping that he’s becoming more knowledgeable, and when he turns 18 and gets his own Visa card he won’t fall prey to consumer trap.”

If you’re using allowance as leverage for good behaviour, you’re probably setting yourself up for eventual failure. For one, kids aren’t always motivated by money. Beck notes that screen time became a stronger and more meaningful currency in their house.

For another, as with many bribes, the payment becomes less effective over time. Once kids start making their own money, your leverage is lost, perhaps without any lessons about personal responsibility.

Other tips: don’t extend credit against future allowance; don’t borrow from your kids; use actual cash, not digital; and let kids make their own spending mistakes.

Finally, if you want to teach good spending habits, model them for your kids. Make a budget, avoid impulse purchases, and live within your means.

Allowance could turn out to be a lesson for the whole family.

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