April is Financial Literacy Month, a great occasion to consider how you can use an allowance to teach kids important money management skills. What are the most important dos and don’ts when it comes to giving your kids an allowance?
Communicate Clear Expectations for Spending, Saving and Giving
It’s important to communicate clear expectations to your kids about how to handle their money. Experts agree that if you want to teach them about the value of money and also encourage them to become caring human beings, then show them how to divide the allowance into three parts: spending, saving, and giving. “This is an excellent way to expose them to the three most important things they can do with their money,” says Brad Munson, a personal finance expert, “and it’s a lesson that can last a lifetime.”
Come to a mutual agreement about how much money your kids are allowed to spend, how much they are supposed to save, and find a charity that they truly care about. As Susan Borowski, the author of “Money Crashers” puts it, having kids “choose the charity of their choice will make them more likely to set aside the money. Just like we give to charities that matter to us, children also need to give to a charity that matters to them, or they won’t be motivated to do it.”
Use The Allowance to Inspire Regular Conversations About Money Management
Think of the allowance not primarily as a means of making money available to your kids, but rather as a way to inspire regular conversations with them about money management. Kimberly Palmer, the author of “Smart Mom, Rich Mom,” says to “worry less about how much you give than that you use the allowance as a chance to talk to your children about money. The whole point,” Palmer says, “is to get them used to handling and talking about money so it’s not so much the amount as the conversation around it that matters.”
Personal finance expert Neale Godfrey, the author of more than two dozen books on financial literacy, writes: “Talking to your kids about allowance and money is just as important as giving it.” Research shows that the more kids discuss money management with their parents as they grow up, the better they become at managing their own finances as adults.
Be Consistent – But Regularly Review Your Allowance Policies
However you decide that your kids should allocate their allowance, be consistent about your allowance policies and only change them if you have very good reasons to do so, like if you simply can’t afford the current amount or your kids are not adhering to the agreed-upon expectations. As child psychologist Dr. Mary Kelly Blakeslee says, “Nothing bothers kids more than unfairness. If you change the rules without a good reason, you’re reneging on a contract. While children need to learn that life isn’t always fair, you can still respect your children’s feelings by explaining why you have to decrease their allowance or postpone payment and let them know you can understand their annoyance or disappointment.”
Munson writes that consistency from parents “builds trust, reduces bargaining, and encourages planning for the future.”
Don’t Use the Allowance as Punishment or Reward
An allowance should be used to teach kids money management and not as punishment or reward. An allowance, says Munson, “is supposed to develop greater trust and better communication and cooperation, so using it as an unexpected disciplinary tool will just make you look cruel and arbitrary in the eyes of your children (no matter how much they might seem to deserve it). Find another way to make your point while living up to the original bargain.”
Financial planner Nevin Martell agrees: Using money “as a yo-yo – ‘I don’t like this or I don’t like that, so I’m going to cut your allowance’ – is not going to help them form a healthy relationship with money.”
Similarly, don’t use the allowance to reward your kids for unrelated accomplishments. “Giving your kids money as a reward,” says Joseph Hogue, a certified financial planner, “establishes the mentality that you only need to do things if you’re getting paid.” Instead, Hogue suggests “let[ting] them pick the family outing for the week or just tell them how proud you are of their accomplishment.”
Don’t Tie The Allowance To The Performance Of Regular Household Chores
Finally, while some parents tie the allowance to regular household chores, consider the following before doing so: It defeats the idea that being part of a family entails that one has certain responsibilities; it encourages your kids to bargain every time you ask them to do something around the house; and your kids may even stop doing their chores once they feel they have enough money.
Instead, offer your kids extra money for tasks you otherwise would have paid someone else to do such as mowing the lawn or painting the house. Godfrey suggests that parents carefully distinguish between what he calls “citizen-of-the-household chores,” for which they shouldn’t get paid, and “work-for-pay chores,” for which it makes sense to give them some extra money.
Tanni Haas, Ph.D. is a Professor in the Department of Communication Arts, Sciences & Disorders at the City University of New York – Brooklyn College.