The Price of Allowance

Allowance can be a tricky subject to tackle. Even my wife and I have differing views on allowance. When someone brings up the conversation of allowance, the traditional understanding tends to be that you pay your child a certain amount of money in exchange for their completion of a list of chores. This mimics the adult world, where you go to work, do a series of tasks, and every couple of weeks you get paid. If you don’t work, you’re out of a job and therefore you don’t get paid. Makes sense, right? Great! End of discussion.

But wait a minute! Maybe it’s not so simple. As a dad, yes, I go to work to earn a paycheck to provide for my family; but when I come home, I don’t get paid to cook dinner, do laundry, clean the floors, mow the lawn, or any of the household stuff. That just comes with being part of a family. This was how my parents raised me. I had to do chores, but I didn’t get paid for them. I was expected to pull my weight (given age appropriateness of course), because that’s how a family unit works. Everyone must contribute in their own way.

Right or Wrong?

I don’t believe there is a right or wrong way to handle an allowance. I think it is mostly rooted in what your goals are. The traditional understanding of paying allowance for chores is viewed as a way to instill work ethic. Some people argue that tying an extrinsic reward to a result, may undermine your child’s intrinsic motivation to be a helpful member of the family. However, as my wife likes to remind me, there are plenty of highly successful and well-adjusted adults that were paid an allowance for chores as a kid.

My view, while not right or wrong, is slightly different from the tradition. I view allowance not as a way to teach work ethic, but rather how to teach good personal finance lessons in a low-stakes environment. In addition to the birthday and holiday money they received from family, my daughter also receives a small weekly allowance (my son is still a little too young at this point). She still has chores to do, which she does diligently, but she’s not compensated for those chores. If she doesn’t do her chores, she still gets paid; but some other privilege or fun activity is restricted until the chores are completed. Since implementing this allowance, I‘ve seen her mindset towards money shift. She thinks twice about frivolous purchases when it’s her own money. There have been a handful of times where I’ve told her if she wanted a toy she’d have to use her own money, and she has changed her mind about buying the toy. There have also been times where she’s purchased something with her own money, and then didn’t have enough money for something else. She was disappointed, but she’s learning about opportunity costs and that money is finite.

Setting Expectations

My journey into teaching my kids about personal finance is still in the early stages, and undoubtedly things will change along the way. But it’s important to me to set clear expectations as to what it means to contribute to the household as a member of the family (according to age and abilities), and allowance is a tool to teach real-life money management skills while the stakes are low. As time goes on, I may implement an “above and beyond” clause that stipulates they can earn additional money if they do extra around the house, outside of their minimum expectations. That can be a future topic.

Check out Part 2 in the future, where I discuss paying an allowance in cash versus a debit card.

As always, I’d like to encourage our readers to chime in. Let us know how you handle allowance in your home. There are so many ways to do it.

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