The Childhood Allowance in the 21st Century

When I was a five, my dad sat me down and explained how I could earn an allowance: Every week, I would earn a dollar amount equal to my age, to be paid out at the completion of my weekly chores list. Should my chores go unfinished, my allowance would not be earned. For 13 years, I kept a meticulous record of my earnings, spending on daily extravagances (candy bars) and saving for big expenditures (toys), and working day and night to make sure all my chores were done perfectly on time. I am confident that my childhood allowance gave me the skills to be a fiscally responsible adult.

Even so, once I became a mother, I found myself simply forking over a few bucks whenever my money-hungry little one was wanting. Today, many parents decide to forego the allowance system and simply buy their kids whatever they need (or whatever they think they need). Is the childhood allowance dead, or is it still a valuable tool for teaching kids about money?

The Benefits of an Allowance

Most parents’ biggest allowance fear is that their kids will become entitled brats, ceaselessly demanding cash without any regard for the significance of having money. However, it is just that spoiled behavior that most experts purport allowances cure. Financial literacy is a major problem in the United States; one study suggests that one in six American teens is unable to make smart, simple everyday spending choices due to a lack of financial education in schools. Providing an allowance provides children the opportunity to learn financial responsibility at home with hands-on practice.

In addition to financial lessons, an allowance provides kids an outlet for independence. When parents control coffers, children often aren’t allowed to experiment and develop their own style of spending. Kids with their own money to burn have a chance to feel free and acquire individuality unlike those whose parents supply every toy and T-shirt.

Finally, an allowance is perhaps a parent’s most useful tool in enforcing good habits and teaching life lessons. For example, some parents link allowance with chores, like mine did, to underline the fact that money must always be earned, never received without work. Other parents subtract certain amounts from allowances due to improper behavior or poor grades. Kids quickly learn that misdemeanors are not worth the pay decrease, and they learn to practice behaviors that will benefit them for the rest of their lives.

Making Allowance Modern

Kids love cash — paper and coin currency is perhaps the most satisfying to hold in-hand — but it is likely that they will rarely handle cash in their adult lives. More than 80 percent of U.S. consumer spending is absolutely cashless, which means that the vast majority of purchases are through debit or credit cards. Additionally, as online spending increases in popularity, other forms of online payment will further replace transactions with cash. Many children who grow up associating money with cash may have a hard time adjusting their good spending habits to a paperless world. Thus, it is wise to consider dolling out allowances in more modern forms.

Cards provide parents the opportunity to more closely monitor their children’s spending habits to ensure little ones’ money is going to expected expenditures. When kids are still young, allowances can take the form of gift cards or pre-paid cards; however, when kids reach their teens, they should start learning how to handle debit and credit either by linking to their parents’ accounts or starting their own. Though it remains important to carry some cash, for the most part, teaching kids about various forms of payment options will help them more in the future.

Allowance Dos and Don’ts

While there seem to be unending benefits to providing an allowance, even in the 21st century, there remain right and wrong ways to go about it. Before parents start doling out weekly payments, they should learn these tips to ensuring kids learn the right lessens at the right times:

• Do: Start early. Most kids start asking about money in their preschool years, which is when parents should consider first offering an allowance.
• Do: Provide structure. Especially initially, parents should impose divisions among the money they provide. Experts usually expect their kids to divvy up their allowances into three categories: save, spend, and donate.
• Do: Give raises. Just as adults expect regular pay raises, kids should look forward to increased allowances on a regular schedule.
• Don’t: Give too much. Parents shouldn’t stretch their household budgets in order to give weekly allowances. Rates should be dependent on what the family can afford, not what the kids expect.
• Don’t: Bail them out. Kids will inevitably make financial mistakes, and parents should make sure they feel the full weight of those mistakes while they are young.