Are Allowances Evil? Weekly Family Finance Picks (#48)

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit the FamZoo delicious page to see our ever growing list of family finance bookmarks. We’re up to 1,540 now! Each week, we pick our favorite articles from the previous week and post them here.

Are allowances bad for kids? The timeless parental debate rages on. This week’s picks shed some light on the various perspectives.

Moms Talk: How Do You Handle Allowance?

Is Allowance Evil?

Let’s wade into the debate gently with a wonderful story. Aliza shares her fond recollections of how her parents taught her about money as a child growing up in Brooklyn. I love it. Aliza doesn’t explicitly say she adores, admires, and respects her parents. She doesn’t have to. Her story says it all implicitly. I’ll know I’ve done my job as a parent properly if my kids someday share similar stories and seek to replicate similar experiences with their own kids.

The FamZoo Philosophy page asserts, “We believe a parent is a child’s best mentor.” Aliza illustrates our credo perfectly. Look at all of the elements that come together in her story — leading by example, bestowing responsibility, setting clear expectations, dealing with consequences, living within constraints yet enjoying life (yay chocolate croissants!).

Back to the debate: Notice the role that Aliza’s allowance plays. It evolves, and it’s only a piece of a larger picture — just one tool applied thoughtfully within a sound, loving relationship grounded in clear communication and expectations.

Allowances definitely aren’t evil in this particular scenario.

Allowances: “Welfare” for kids?

Isolated stories are nice, but what does the research show? Lots of bad stuff according to Liz in this article. Allowances undermine the formation of a work ethic. Allowances undermine financial literacy. Allowances undermine paid employment. Allowances undermine college attendance. Allowances undermine smart financial habits. Yow!

How do we resolve these decidedly nefarious “scientific” findings with the undeniably positive allegorical findings above?

First off, the definition and circumstances of an allowance can vary so drammatically that results merely based on the presence or absence of an allowance seem highly suspect. How much allowance? What’s it for? There’s a world of difference between a clothing allowance backed up by a concrete budget and a random allowance doled out purely for spurious “wants.” Does the parent combine the allowance with healthy communication, clear expectations, outside jobs, financial advice, and other educational techniques? How in the world does a study control for all those variables? It sounds like a daunting task to be truly rigorous in this area.

On a related note, what’s the statistical margin for error? For example, the financial literacy conclusion is drawn from results that differ by a paltry 2%. That’s a mighty slim margin to be citing as compelling, definitive evidence.

Suffice it to say, I remain very skeptical of (if not irritated by) these studies and the conclusions that are being drawn from them. They certainly help journalists write intentionally provocative pieces and drive traffic from fervent adherents on both sides of the debate. That’s not all bad — as long as readers actually take the time to wade through the commentary beyond the headlines to reflect on the differing points of view. In this case, Liz suggests some excellent guidelines at the bottom of the article and several readers weigh in with some interesting tips. For example, I like the comment from the parent who explains how they give their child $177 per month in allowance, but after assessments for his share of utilities, TV/cable, phone/Internet, insurance, food, clothing, and an automatic deduction for savings, he’s left with a modest $15 dollars of discretionary spending money each month. Now there’s a real world education.

The kid paid cash — $1,500

For symmetry, I’ll close with another nice story. Lynn writes about a teen who purchaes her own MacBook Air. It’s refreshing — and sadly unusual — to see an article about a teenager with healthy, balanced money habits and perspectives. It appears that the allowance she received when she was little didn’t foster an entitlement mentality or cause any of the other negative side effects cited in the research above.

You might want to keep this story handy when fielding that next purchase request from your teen. And check out the Girl Spends Just $7 On Prom Dress video that’s embedded in the story. For those of you with daughters, that’ll come in handy too. Why? Check out last week’s post!

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