Giving Your Child an Allowance: Good or Bad?

When it comes to giving their children an allowance, parents typically take one of two approaches:

• No Strings Attached: Children are given a set amount (usually weekly) and are either free to spend it as they wish, or they must allocate it in certain ways. For example, they have a rule that a portion of the money must be put in their piggy bank or savings account.

• Earn What You Get: Parents link allowance to work, usually through household chores. This approach is used to drive home the idea that “There’s no such thing as a free lunch — you have to earn what you get.”

So which approach is best?

According to one prominent educator and financial expert, the answer is none of the above.

For generations, the idea that giving kids an allowance is an important strategy for teaching them how to manage money at a young age has gone unquestioned. However, Lewis Mandell, professor emeritus of finance and former dean of business at State University of New York in Buffalo, is ruffling some feathers by challenging conventional wisdom.

Mandell, who grew up receiving an unconditional allowance from his parents — and who, as a parent himself, gave his daughter “free money” — was initially surprised at what he found when he analyzed a Jump$tart survey from 2000.

In it, he discovered that children who did not receive an allowance repeatedly scored highest on financial literacy tests — above kids who earned allowance with chores and those who collected an unconditional allowance.

One possible reason for these findings, Mandell believes, is because kids who don’t get an allowance are forced to talk with their parents about finances more frequently—and discussion is one of the best ways a child or teen can learn about money management.

Mandell writes:

“Allowance systems are effective only when they afford the possibility for discussions about finances within the family, such as why and how families make the financial decisions they do. And even then, the conversations could be effective on their own even without giving over the money. Unfortunately, very few parents today have the time, patience, expertise and willingness to have the correct conversations with kids. So, allowance continues to be mishandled. Given the choice between a mishandled allowance and no allowance, I’d choose no allowance every time.”

Another possibility, Mandell says, is that kids who don’t receive an allowance are more apt to get a paying job in high school. This typically makes them more financially independent and capable, compared to their peers who rely on parents for funds.

However, the debate on whether allowance helps or hurts a child’s financial maturity is far from over. In fact, there has been little in the way of scientific research done on the topic, which has long been taken for granted as common parenting sense.

One thing parents on both sides of the fence can take away is this: The issue is not whether allowance is “good” or “bad.” It’s about using payouts as a platform to discuss how to handle money responsibly, along with the benefits of saving for your future.

That’s something every parent can get behind.

What is your stance on giving children an allowance?

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