Over the years, an "allowance" has become an almost universally accepted way of teaching kids about money and helping them to become more self-reliant.
The problem is that it rarely does either of those two things. In fact, it may work against them.
Kids who are given money do not perceive real ownership of that money since they did not earn it or give up anything for it. And since they don't feel true ownership of the money, they also do not feel ownership of what they buy with it.
Why does that matter? Because ownership is the antidote to entitlement and the prerequisite of responsibility. Kids who earn their money value it; and they value what they buy with it.
So here are the 8 common mistakes parents make:
1. Calling it an allowance in the first place. "Allowance" is a welfare term. It implies that someone (parent) is allowing someone else (child) to have some of the parent's money. The term itself is the antithesis of earning and owning.
2. Doling it out with no connection to work or performance. What worse lesson could we teach our kids than "something for nothing?"
3. Making it a fixed rather than a variable amount. This implies that "what you do doesn't matter, because you will get the same thing no matter what."
4. Connecting it to no budget or priority of spending. The pattern of putting no thought into what money is spent for can become the financial downfall of a whole life.
5. Giving kids everything that they need so they don't need any of their own money for necessities and can spend it all on junk and frivolity.
6. Having no provision for saving or for giving. Money should carry responsibility, and if none is saved and none is given, money becomes a complete entitlement.
7. Bailing kids out when their allowance runs out. This rewards irresponsibility and teaches them that "there is always more where that came from."
8. Trying to be sure your child's allowance is at least as much as that of his friends. What other families are doing should have very little with what you decide to do to teach your children financial responsibility.
So there are a lot of mistakes that can be made with allowances...
How about eliminating them all... by eliminating allowance altogether?!
We propose a "family economy" where kids as young as 7 or 8 have a certain, small number of tasks they are asked to complete each day (from simple things like cleaning one common area of the home or clearing the table after dinner to doing routine things on their own initiative without being reminded, like homework and music practice). They keep track of their tasks with a pegboard or a computer program, and at week's end, instead of allowance day, it is pay day, where they receive an amount directly proportionate to the number of tasks they remembered and completed.
Make the potential earnings enough that they can buy all of their own "stuff" rather than asking you for it, and work with them on a budget where a certain percentage is saved each week and a percentage is set aside for giving to charity or church. Have a "family bank" (the biggest, most impressive wooden or metal box you can find with a big lock on it and money inside) and give kids checkbooks that draw on the family bank. Have the bank pay interest on the parts they save.
Stop thinking of money as something that can spoil your kids; start thinking of it as the raw material with which you can teach responsibility, delayed gratification, saving, generosity, and ownership.
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For complete details on setting up a full-fledged Family Economy, be sure to check out our new book THE ENTITLEMENT TRAP: How to Rescue Your Child with a New Family System of Choosing, Earning, and Ownership (Avery paperback original; on sale: September 6, 2011; $18.00).
Richard and Linda Eyre are among the most popular speakers in the world on parenting and families. The authors of numerous books, including the #1 New York Times bestseller, Teaching Your Children Values, as well as others like The 5 Spiritual Solutions for Parents, and How to talk to your Child about Sex, the Eyres are the parents of nine and the grandparents of 21. They live in Park City, Utah.