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How to implement a children allowance that reinforces your core values & behaviors

If you’ve read my older posts, you know I love to read.  I’m regularly reading blogs, books, and listening to podcasts.  I’m not great with money, so on occasion, I’ll include personal finance advice into the reading rotation.  One topic that you’ll regularly encounter in these finance or parenting magazines is this debate about whether to give your child an allowance and the best tips for doing so.  Most financial experts recommend giving an allowance, but there is an active debate on how to implement.  Do you pay your kid for doing chores?  Do you pay for getting good grades?  Behavior?  Or should you give allowance with no strings attached?  Just like you, I’ve felt a little bit lost when considering what type of approach I wanted to take with my kids.

In this article, I list out the pros & cons for a variety of options and share the approach that works for my family.  I’ll walk you through our journey and explain why we chose the method we did.  This is not scientific.  There is surprisingly little research on this topic – if you find some analysis or study that I missed, please comment below so we can all benefit!  I’ll also share differing points of view, so you can make a fully informed decision on what you think the best approach is.  I’ll then walk you through the practical step on “how to” implement our system, with a particular call to action so you can start this process today!

Why should I give an allowance to my kid?

Most financial experts suggest the following reasons for giving your kids an allowance.

  1.  An allowance teaches your child the value of money.  Before getting an allowance, my children had little appreciation for the difference between a $20 toy versus a $100 toy.  They always wanted the more expensive option.  However, once they started to realize the trade-offs, the kids become much smarter about purchasing.  I’ve noticed my kids will often opt to buy two or three $10 toys (for example three small action figures that can be played with together) rather than buy one big expensive item.
  2. An allowance teaches your child the concepts of saving versus spending.  According to this article in the Atlantic, almost 50% of Americans wouldn’t be able to come up with $4oo in an emergency without borrowing or selling something.  Scary!  I don’t want that for my kids.  Learning to save up their money to help fund their college education, pay for a travel experience or save for a future big-ticket purchase is a highly valuable skill.
  3. An allowance is critical in instilling a sense of generosity and giving.  Being unselfish and caring about others is one of the most essential character traits I’m trying to teach my kids.  I sincerely believe that being generous has significantly helped me both professionally and financially.  At work, my willingness to take time to mentor people outside of my organization with unfiltered and unbiased advice has paid me back in surprising and delightful ways.  My attitude of trying to find a way to say “Yes” when people have asked for help, has contributed to any professional success I’ve had.  And call it Karma or whatever you want to call it, but even for a cheapskate like me, I’ve seen a financial return on investment when I contribute freely to charity.  A friend of mine had been unemployed for almost a year, in spite of his stellar technical expertise.  After the Puerto Rico Hurricane disaster, he traveled to the island on his dime and sacrificed his time to help with disaster relief.  When he got back, he had two job offers.  He’s starting his new job with one of the worlds most recognized institutions on Monday!

Generosity pays off and its an essential character trait that I want my kids to have.  You can’t teach kindness when it comes to financial sacrifice unless your kids are given an allowance, and then have to make the hard choice.  Do I give it to a good cause, spend it today or save money for my future?  We all know this is not a natural choice.  I struggle with it even today.  The earlier my kids get to practice this the better.  Bill and Melinda Gates are universally recognized for their commitment to the greater good and using their staggering wealth & network to help address the thorniest world challenges. Check out the video below to see the Gate’s family approach to allowance.

What is the downside of giving an allowance?

It is not universally agreed that giving an allowance is the right thing for your child.  On debate.org, 30% of participants said parents should not give allowance to kids.  Examples listed include:

  • Kids shouldn’t get allowance for doing things they should already be doing (ie. chores, good behavior, school work)
  • Allowance can create a sense of entitlement.  A sense that they are owed.
  • Older kids become too dependent on their parents instead of pursuing part-time jobs.
  • Kids may make bad decisions on how to spend their allowance, including buying inappropriate or dangerous things.

Dr. Lewis Mandell conducted one of the more significant and thought-provoking analyses I’ve seen on this topic. He claims that after studying various research across the western world, studies have shown giving a child a regular, unconditional allowance is a terrible idea.  He cites a study of High School seniors from 2000 where those who received no allowance received the highest mean financial literacy score.  Those who did receive an unconditional allowance earned the lowest score.  Besides, a higher percentage of these students chose to not go to college, even though they were often the children of college-educated parents.

Dr. Mandell’s main point is that allowances negatively impact the desire of children to work, nor do they lead to increased savings or financial literacy.

If you’re interested in this topic, I highly recommend you take the time to read his point of view.  It certainly sobered me up and forced me to think long and hard about the approach I’ve taken.  However, I still recommend giving an allowance to kids, and if you keep reading, I’ll share my counter-arguments to above points.

Should I give allowance to kids for doing their chores?

An argument for paying your kids for doing chores is it teaches them the connection between working hard and getting paid.  If you empty the dishwasher, you’ll receive a reward.  Most experts agree that this is not a great idea and in fact, it teaches children a very dangerous lesson.  That you will get paid for doing activities that aren’t fun or interesting.  Your kids are going to be in for a severe shock down the road if they think they are going to get paid to cook dinner, cut the grass or clean their home.  Plus, paying for chores completely undermines the goal of making our children more generous.  Your kids should help you clean the kitchen or carry groceries because it is the right thing to do, not because there is a financial benefit for them.  Helping others and learning to enjoy the energy that comes with being generous is highly valuable.  In fact, your child may choose to not help with chores as the value of the allowance isn’t enough to offset the time required to do the task or even worse, may try to negotiate with you to increase the allowance to make it worth their time.

Yikes.

So don’t pay your kids to do chores!

 

Should I give allowance to kids for getting good grades in school?

This one is more tricky.  On the one hand, we all want our kids to get A’s and excel in their studies.  Most of us also struggle to get our kids to focus on getting homework completed in a reasonable time, with a quality result.  On the other hand, paying for grades is a slippery slope.  Do we want to teach our kids that the primary value of acquiring knowledge is so they can get paid?  If so, are you getting paid to read this?  No.  We learn because our brain rewards us for learning, by releasing dopamine, the same chemical reaction in our body that is released when we eat chocolate or win a  prize. Paying for performance cheapens this whole process.  There is an extensive debate on whether we should pay college athletes a commission for the enormous revenues that college sports bring in.  While I’ll sidestep that discussion for now, I can give the example of Hall of Famer Michael Irvin who said the most fun he had playing football was in college because he was playing for fun, and not for money.

 Should I give allowance to kids with no strings attached?

If you’ve read Dr. Mandell’s article and subscribe to his point of view, then the answer is no.  However, Dr. Mandell’s viewpoint isn’t widespread, and many financial experts cite the benefits of unconditional allowance, including teaching the value of money, saving and charity.   For the sake of brevity, I’m not going to advocate for or against this concept, but would be interested in hearing from readers what practice they follow, why and what results they’ve seen.

Giving allowance to kids as a means to reinforce specific character behaviors

This is the approach we use.  The idea here is that I give my children a daily allowance if they can give me examples of what they’ve done today to become a better person.  The most important character traits I want to pass onto my kids are to be generous, to be continuously improving, and to be a good Muslim. I figure if they focus on these three big ideas, everything else will take care of itself.  So every night I ask my kids at the dinner table.

  1. Give one example of how you helped someone today?  (Doing regular chores doesn’t count).
  2. Give one example of how you got better at something today?
  3. Did you say your prayers and read the Holy Quran today (we are Muslim).

Through this conversation, I invariably learn more about my kids.  Rizwan’s examples of how he got better at something often revolve around recess.  That’s fine.  He’s passionate about playing sports and loves telling me about the fantastic interception he made this afternoon.  Other times he’ll let me know about some new history he’s learned or his interest in rocks.  Khadija’s examples often include helping classmates.  I find this to be a win-win model.  I also go out of my way to minimize making this process repetitive.  Sometimes I’ll just give them the allowance without asking them the three questions, as we both know, they were ready to share their examples.  The idea here is NOT to make this overly transactional. I’m not paying for behaviors; I’m trying to encourage my kids to tell me about their day and progress they’ve made.  I’m explicitly communicating what I think the most important behaviors are I expect, listening to them tell me how much progress they have made in this space, and then recognizing their achievement.

At times I’ll change the questions to introduce other behaviors I’m interested in seeing them develop.  I try to keep it fresh.

  1. Give me an example of how you told the truth in the last week, even though it was uncomfortable or scary?
  2. Give me an example of how you worked hard to achieve a result?
  3. Give me an example of how you were kind today?

What do you think?  Is this different from paying for chores or grades?  Share your thoughts on the comment board.

Creating a regular, systemic process to give allowance

Some years ago, shortly after reading one of those articles I mentioned in the introduction, I started to give out a weekly allowance.  Quickly, the plan fell apart, as I wasn’t able to maintain any consistency at that frequency.  I’d use a meeting reminder but would often ignore it in the moment.  Not good!

The big breakthrough was when I increased the frequency to give $1 every day.  It is much easier to maintain a daily habit, rather than weekly!  I went to the bank and asked for $200 in one dollar bills. Now, I never have an excuse where I don’t have the right change or don’t have cash.  Simple!  Periodically, we transfer the kid’s savings into their bank account from my checking, and then I get to recirculate the dollar bills.

Lessons learned by giving allowance for certain behaviors

It hasn’t all been smooth sailing since we implemented this process.  It took a few days for Khadija to get that I was serious and that I expected answers to all three questions for her to get the allowance.  There were often nights where one kid earned the allowance, and the other didn’t.  But this was the exception rather than the rule, and for the most part, the most prominent issue has been my consistency in giving daily allowance.  I often am guilty of having to give catch up allowance.  The wonderfully surprising part is that after six months of this process, my kids have never once given me a hard time about missing an allowance or being too tough on them.  From what I can tell, receiving an allowance has only been a positive experience.

Researching and preparing to write this article has forced me to deeply reflect and be vigilant for minimizing the risk that Dr. Mandell warns about.  I’ve been earning a paycheck consistently since I was 16 (although I did get a little lazy in college), and I paid for school myself.  I’m focused on making sure my kids will understand the financial and intrinsic value of hard work.  When my kids get to be teenagers, I’ll seriously consider stopping the allowance so that they can earn instead. We’ll see.

In summary, I believe there is real value in teaching kids about the importance of money and generosity by giving an allowance.  However, I don’t tie allowance to completing certain chores or attaining high grades.  Instead, I reward my kids by giving them an allowance for explaining every day how they got better today.  Ultimately isn’t that what all of us want for our kids?

Net It Out & Call to Action

  1. Go to the bank today.  Withdraw $100 in $1 bills.  Make the process as simple and regular as possible.
  2. Decide what behaviors you want to model.  Tell your child you’ll give them a daily allowance if they can give you examples of implementing the practices you want.
  3. If they choose not to follow through, don’t give them the allowance that day.  Ask again every day.  Encourage them. This isn’t meant to be a punishment.  You want this to be a reward.
  4. If you forget to give an allowance, don’t worry…you are human.  Start again today!
  5. Leave a comment on the message board.  What is your point of view on allowances?  What have you tried?  What results have you seen?  What advice do you have?

PS.  In a future article, I’ll write about what rules we’ve implemented on how our kids can spend, save or donate their allowance.

Additional resources on this topic

 

About the Author Iftikhar Khan

With over 16 years of Operations Leadership at Apple, Iftikhar has had pivotal roles in launching the iPod, iPhone, iPad & Apple Watch. In late 2017, he launched k12toSTEMCareer.com with the goal of becoming a better parent to his children, Rizwan and Khadija. Today, over 1214 people follow Iftikhar's writings around STEM & Parenting. Read Iftikhar's personal story about his journey from an Introvert to a Director at Apple.

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