For decades, parents have dutifully paid allowances to their children, often in exchange for chores around the house. Most of the time, they probably think they’re passing on the value of hard work and teaching important lessons on how to save and spend. It turns out they’re mistaken.
According to new findings, paying children an allowance can do more harm than good when it comes to their future financial literacy skills. According to Lewis Mandell, a professor of finance at the University of Washington who recently studied more than 50 years’ worth of allowance research, “The kids who receive (a regular, unconditional) allowance tend to think far less about money in general.” In fact, he adds, those children appear more likely to grow up to be “slackers,” since they aren’t learning to associate work with money.
Dollars and drudgery
Paying children for chores around the house can also lead to problems because it teaches them that working for money isn’t fun, warns Alisa T. Weinstein, the author of “Earn It, Learn It: Teach Your Child the Value of Money, Work, and Time Well Spent.” Paying for good grades creates a similar problem: Instead of being driven by self-motivation, children learn to work hard just to earn the extra cash.
Many parents skip regular allowances altogether, which isn’t necessarily a bad thing. According to Mandell’s review of decades of research, children who have to ask their parents for money each time they need it, whether it’s for clothes or lunch, tend to fare better with money later in life. Perhaps that’s because they are forced to think about what money is being used for, he says. “The kids who have to ask for the money have higher financial literacy than those who get allowances,” says Mandell.
But is there a smarter way to pay children an allowance, so that they learn how to handle money at an early age? Mandell says parents should talk about family finances with their children when they pay an allowance. “Allowance can be used very constructively, but to use it constructively requires time, effort and a degree of honesty on the part of the parent,” he explains. “Most parents don’t want to do it because they don’t have much time,” he adds.
Another alternative, and the subject of Weinstein’s book, is to connect the allowance with tasks related to various careers. Children can choose a career — 50 are profiled in the book, including geologist, travel agent and chef — and then complete tasks related to that career. Travel-agent tasks include reporting on a destination in an appealing way, creating a brochure, and for older children, calculating exchange rates…
Read More: money.msn.com