The No-Allowance Policy for Happier Kids
Forget the regular handout — it doesn't help build responsibility or forethought, and here's why
When it comes to kids and money, there are few topics that cause more confusion for parents than allowances. When should you start? How much should you give? Should an allowance be dependent on the completion of chores?
Regardless of the questions, many parents use the weekly dole as a teaching tool — a way to help their offspring learn about budgeting and critical thinking about money. In fact, 79 percent of parents these days give their kids an allowance, according to T. Rowe Price, up from 47 percent in 2013.
Teaching the value of saving and smart spending is one of the most important ways a parent can set up a child to be successful for the future, said Alec Gorynski, vice president of community development and corporate social responsibility at the First National Bank of Omaha (Nebraska).
But the best way to do that, Gorynski said, is NOT to give kids an allowance.
No allowance? Instead, he prefers age-appropriate guidance on teaching children financial wellness.
Kids, Gorynski told LifeZette, don’t need to be handed a set amount of cash every week for them to appreciate and understand money. In fact, allowances might even backfire — kids could expect to get something for nothing.
“Money isn’t necessarily the best reward for every child; however, financial knowledge is an invaluable lesson to learn,” he said. “You can help children identify needs vs. wants, set short- and long-term goals and guide them through the goal-setting process all without an allowance.”
Gorynski shared more of his thoughts in an interview.
Question: Why it important to teach kids about budgeting and to think critically about money?
Answer: Helping them develop critical thinking skills will allow them to be able to analyze, make inferences and better make sense of information that will help them in real-world situations. This will also help them establish a strong financial independence in their adult life.
Q: How can you teach the value of money without giving your child an allowance?
A: Introduce the idea of commerce by turning in a certain number of coins for a certain reward. For example, 10 coins equal a trip to the park. You can also talk to your children about how much things cost when shopping, like going to the grocery store, for example.
Q: Why is it important to teach children to set short- and long-term money goals?
A: This will set them up for the future — not only are you teaching them how to set goals, but you are teaching them how to work hard for something to achieve it. In a world where all kids get trophies just for finishing, this will help put them ahead of the pack and will guide them down the path of a strong financial future.
The lessons from short-term and long-term money goals can be applied to any milestone they will face in life — a short term goal of saving up enough to get a soccer ball is the equivalent of the short-term goal of finishing their summer reading. While it may take a while, it is easily attainable if they work at it.
A long-term money goal would be saving up for a ticket to a professional soccer game, which is comparable to getting an A+ in the year for English class — all the hard work and dedication from the summer reading helped pay off, not right away, but over time.
Q: How can giving a child an allowance backfire?
A: If you give your child money for chores without teaching them the value of saving, then they will not understand the big picture as well as the importance of investing.
Q: If you do want to give your child an allowance, what’s the best way to do it?
A: The best method is to instill the importance of savings. Help them set up a system where they can save up their money for a bigger ticket item they want, so they can appreciate the value of hard work. Additionally, help instill the feeling that saving is a good thing, as well as teach them how to make smart choices with their money. (click on page 2 for the rest of the story)