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Children and Allowances

Paycheck or an Entitlement?

By Laura Lyster-Mensh

Does your family call it "giving an allowance" or "paying an allowance"? How you answer that question can reveal a lot about a family and its values surrounding money and work.

Andolyn*, a mother of four children between 7 years and 16 months in Mobile, Ala., sees allowance as an opportunity to teach her children money-management skills. That's the most often cited reason for giving a child an allowance: to teach financial literacy. Unfortunately, there is little data out there to show that this theory actually works.

In fact, Lewis Mandell, professor of finance and managerial economics at the State University of New York at Buffalo, did a national survey of 12th grade American students and found that those who received a regular allowance did worse than those who didn't at skills involving financial literacy.

Ann Douglas, co-author of Family Finance: The Essential Guide for Parents (Dearborn Trade Publishing, 2001), looks at allowance as one of many ways to teach financial literacy. Among her other suggestions are setting a good example, explaining real-world issues and teaching age-appropriate lessons. And, she says, "Don't be afraid to let your child learn a few money-management lessons through the School of Hard Knocks." As for allowance itself, Douglas thinks an annual review of both level and responsibilities is important.

Many families use allowance as a management tool for household chores. "Allowance can be useful in the context of a behavior management plan," says Tara E. McKee, Ph.D., a developmental psychologist at Hamilton College in Clinton, N.Y., who sees allowance as a positive and negative reinforcement for desired behaviors.

By paying children to do work around the house, the logic goes, they learn the importance of their work and the gratification of being paid. Some families add to a basic amount of allowance if chores are done or pay per activity.

Want to see more?

• Check out our Article Library.
• A Job Well Done! The Art of Delegating Chores to Your Children
• Raising Financially Savvy Kids
• Paying Preschoolers? Determining If Your Child Should Receive an Allowance
• Talk about it!