My husband and I gave our boys an allowance when they were kids. We both received an allowance and thought it was just part of what you do when you have kids.  Neither of us was encouraged to get a job outside the home until after college.

Although I don’t remember being given specific money lessons verbally when I got that allowance (25 cents a week – enough for 5 candy bars back then), I grew up a saver. I gave a bit to the church basket each Sunday. And I bought a lot of junk. My brother and I had chores to do, with or without an allowance. I dried dishes and trimmed grass, he mowed lawns and we both were responsible for our rooms and making beds and of course doing homework and such.

We gave our kids more, because money bought less. I don’t even remember how much. Each, in turn, was hired by me to clean the entire house weekly once they reached sophomore year in high school. They both lined up neighborhood jobs such as mowing grass to get extra money. They are both savers.

The great allowance debate.

Now one of my boys and his wife are having the great allowance debate. Does allowance help kids learn how to manage money or does it make them lazy and entitled?

Who knows? There are opinions and experts on either side of that coin.

I want my grandchildren to learn fiscal responsibility. I’m hoping to leave them a financial legacy, and I don’t want them to just go blow it. I’ve seen what financial ignorance and irresponsibility can do to a person and it isn’t pretty.

Personally, I can’t comprehend how a child can learn how to manage money if they don’t have access to a regular source of income, whatever that source might be. Yes, you can teach them the concepts and have them spit back out on a ‘financial literacy’ test, but without letting them practice, make mistakes, experience delaying gratification and experience buyers remorse, I don’t believe those lessons will be internalized.

Bill Dwight at family finance website Famzoo.com apparently agrees with me on this one, according to Time Business article Kids and allowance the debate that divides:

“I find the allowance debate to be a diversion. To me, the far more crucial thing is practice–early and often. It’s critical for parents to make sure their kids get regular hands-on experience making real spending, saving, and giving decisions with a modest, constrained supply of their own income. I don’t think the specific source of that income (unconditional allowance, chores, outside jobs, or a hybrid thereof) is hugely important, as long as it’s thoughtful, consistent, clearly communicated, and in line with the family’s values. My bottom-line advice to parents: Don’t let agonizing over the allowance vs. chores debate get in the way of getting your kids started with hands-on money practice. Pick an approach, get started, and tweak it over time.”

It seems there are parents who give an allowance, without requiring any effort on the part of the child, without any guidance or supervision on managing the money and while still paying for all of the things the child wants or needs. I can see where this could lead to a sense of entitlement.

Challenging myself to think beyond my own upbringing, I wondered how I might try to teach a child about money without giving them an allowance. As part of that, I thought through what I believe a child should learn at home.

The money lessons I think kids need to learn at home.

Development of a healthy money attitude. The child needs to learn that money is a tool and he needs to learn how to use that tool to his benefit. He shouldn’t grow up thinking that money is an end in itself, or that money should be instantly spent or that money comes freely or that it is really really hard to get. He should learn that he can control how money affects his life by the way he thinks about it. He is in charge of his financial life, not some external force. He needs to learn that money is there to supply needs and to enhance quality of life.

Development of a work ethic. The child should grow up believing she must work for the things she needs and wants in life – that they won’t be handed to her and that the reward is worth very hard work over extended periods of time.

Internal satisfaction at a job well done. The child needs to be able to develop a sense of pride in accomplishing tasks and projects, even when not rewarded monetarily.

Delayed gratification. The child needs to feel and experience the emotional impact of NOT getting what she wants instantly. She needs to learn to wait and save up for it or earn it in some fashion.

Buyers remorse. The child needs to make money mistakes with his own money. He needs to see first hand that something he wants really, really, really badly today – may not be something he likes long term. He should also learn that once he loses interest in that object, he will not usually get all of his money back by selling it to someone else. In other words, he needs to learn that accumulating things is not necessarily a great goal.

Shared responsibility. The child needs to learn and have the human social experience of working together with the family towards a common goal – without expecting extra reward for it.

Budgeting and allocating funds. The child needs to learn that expenses are part of income and they have to figure out how to meet expenses with the income they have, even if those expenses occur later in time than receipt of the income.

Money can grow. I think every child should be shown and experience in some way, the fact that money saved can grow and result in more money later.

Obviously, the above aren’t the only financial lessons a kid needs to learn, but I believe they are some of the biggest ones.

Can these lessons be learned without an allowance?

Young kids without an allowance can still have access to money, but perhaps not on a consistent basis.

They will still get money gifts from relatives. They may still do odd jobs for money. They might even go so far as to save their lunch money (assuming you still send it in cash to school with your child).

But, without a regular source of income, how can a young child develop a spending or saving plan? How can they ever know if they will be able to accumulate enough to buy that longed for toy?

Does a sporadic income result in lack of ability to manage money? Probably not, otherwise, how do adults do it – adults with commission only jobs where income is high one month and non-existent the next. It may be harder to learn and master money management without an allowance as a child, but it is still possible for the child to learn money lessons, including management of it.

That said, I believe parents may need to prime the money pump so that their children learn that money will come if you take the opportunities life offers. I believe parents may need to try to help their child find ways to make money.

Pay for extra work.

I’m in the camp of people who feel that children should be raised to expect to do part of the household work, because they are in the household, without extra pay. But based on my experience growing up and raising our own boys, I also think that if there are certain jobs no one wants to do in the family, it is OK to hire your kid to do them. Sometimes these jobs can be recurring – such as cleaning the house or mowing the yard or shoveling the snow. But usually they tend to be sporadic – like picking up walnuts from the yard in fall, or washing windows before company comes.

Any situation where the family has a need and can live with the consequences of the job not being selected by one of the children (i.e. it won’t get done) might be a candidate for ‘extra work’. There is benefit in this if the parent teaches the child how to do the work satisfactorily; is willing to inspect the quality and enforce corrections if not up to snuff; reward the child verbally as well as monetarily for a job well done; and reinforce it with a story about a time when the parent did an extra job well at work and was rewarded.

Neighborhood jobs.

As your child grows to school age and beyond, they can expand their service offerings to neighbors – as many do. There are pet-sitting, dog-walking, pooper-scooper, babysitting, lawn mowing job possibilities for starters. Of course kids receiving an allowance should also be encouraged to expand their income potential with these opportunities as well.

Parental involvement is key.

But with or without giving an allowance, it is parental involvement that will make or break the child’s financial education. As Today Money article, What to allow when it comes to allowances notes:

“Success depends on how parents decide to play the allowance game. Fumble it, experts say, and children can learn all the wrong lessons about money and develop a sense of entitlement. Handle it well, and children can learn to be responsible decision-makers who know how to allocate their funds and live beneath their means.”

To teach these and other money lessons, kids need access to money with at least a minimal level of predictability; parents need to let kids make money choices and provide guidance about what are good and what are poor choices; kids need to be allowed to make their own money mistakes and not be bailed out; parents need to reward their child’s accomplishments with other than, or more than, money so that he can internalize that feel good emotion he gets from his accomplishment.

Experts also recommend, according to “What to allow when it comes to allowances”,

“…paying kids in cold, hard cash because it’s less abstract than, say, a prepaid debit card; assigning them certain financial responsibilities and sticking to that arrangement without bailing them out..”

Parent’s can take everyday opportunities to reinforce the money lessons they want to teach, by demonstrating them; by involving the children in helping figure out money related family finance items and by consciously setting aside time to impart important lessons (such as the day you give them their allowance, or pay them for a job, or even just at a set time each week).

Money lessons change with age.

When your child is young, they are usually eager and open to your lessons, unlike when they become teens. Starting young to teach financial lessons allows you to start them out right on money management.

Psychology today article, Adolescence and Allowance actually differentiates between the purpose of giving allowance to children vs. teens, saying:

“The purpose of giving allowance is to teach money management skills that young people will need all their lives as they transact business with the world. With a child, parents teach lower level money management skills like learning the costs of things, prioritizing wants, saving for something special, and maybe donating some part of this disposable income to charity.

With an adolescent, certainly by high school, parents are in the business of using more allowance to teach higher level money management skills like paying for recurring financial needs, budgeting weekly and monthly expenses, managing a debit account, and living within their means. Allowance is increased at this older age to cover regular costs like public transportation, car gas, cell phone charges, school lunch, toiletries, recreation, and clothing, for example, expenses for which the teenager is now expected to pay. The allowance lesson in late adolescence is: with more financial freedom comes more financial responsibility.”

When all is said and done, my personal opinion is that teaching money lessons can be easier if the parents give an allowance, providing of course, that the parental involvement level in financial lessons, examples and values is high.

What has been your experience with allowances? What money lessons do you want your children to learn?