Children and Money - Allowances

Excerpted from
The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money
By David Owen

Every child who is old enough to be vaguely aware of the existence and function of money (and yet is no longer so young as to be interested in swallowing pennies) should receive an allowance. Children need money of their own, and paying them an allowance is the best and easiest way to ensure that they have it. I don't recall how old my children were when I gave them their first allowances, but I hope they were very young.

Different people have different ideas about children's allowances, but certain notions are held almost universally by thoughtful parents. Among the more significant of these widely held notions: a child's allowance should be set low enough to prevent the child from spending foolishly; a child should be required to save some portion of every allowance payment; a child should be required to give to charity some portion of every allowance payment; a child's allowance should be linked to the satisfactory completion of certain household obligations, such as emptying the trash.

I disagree with all of these ideas. I'll discuss them one at a time.

How Big Should a Child's Allowance Be?

Among parents there is a strong and largely unconscious desire to keep children in a condition of enforced semi-poverty. Money is at least partly a control issue in most families, and children who don't have much money seem easier to control, since they have limited opportunities for autonomous action. There is also a widespread feeling among adults, perhaps traceable to our grimly destitute Pilgrim forefathers, that deprivation is good for the soul.

My own feeling is that keeping children on excessively short financial leashes promotes fiscal irresponsibility. There is a very funny series of British children's books (written between the 1920s and the 1970s by a woman named Richmal Crompton) about an eleven-year-old boy named William Brown, who, among other perennial difficulties, never has enough money. His official allowance is infinitesimal, and he seldom receives even that, because his father is continually docking him for the cost of property he has damaged or of possessions he has ruined or lost. As a consequence, on the rare occasions when he and his friends do suddenly acquire a few pennies, they unburden themselves immediately and impetuously, before some malicious adult can think of an excuse to empty their pockets for them. They are not savers. Their financial planning extends no further than the end of the day. When they grow up, they will max out their credit cards.

Children who receive harshly stingy allowances, as William Brown does, have no reason to think long-term. They see no point in saving, or in comparing possible purchases, because they know that their incomes are too meager ever to accumulate into anything significant. When such children do come into money, they tend to spend it heedlessly; the rest of the time, they rely on whining, cajoling, and birthday presents to carry them through. They know nothing about money except that money never seems to have anything to do with them.

What Should An Allowance Cover?

Who pays for what? Are clothes included? What about movies? Birthday presents? School supplies? Holiday gifts for people your children have never met? Ice cream on vacation?

Every family has to settle these complicated issues for itself. Here's a general suggestion, though: if you intend to retain control over certain purchase categories, the responsibility for paying for those purchases should also belong to you. Under ideal circumstances, children's spending should be entirely discretionary; that is, spending or not spending the money they control should be entirely up to them. If you decide to make them responsible for buying their own school supplies, then you have also decided to make them responsible for deciding whether or not they can bluff their way through the rest of geometry without a protractor.

In other words, the owner pays. If you are the one who decides what your children are allowed to wear, for example, then you should be the one to pay for their clothes. You own the decision, so you pay.