One Hundred Dollars a Month

Ahhh the hotly contested topic of allowance. There are basically 2 camps: some parents believed strongly that it was the only way to teach children about finances. Others believed that chores should be done around the house because you were a member of the family and therefore must contribute without reward. One side thought allowance was spoiling the child; the other thought not giving an allowance would set your children up for financial failure.

I sit somewhere in the middle of both of those camps.  When my kids were still in school and before they had jobs of their own, I gave each of them $600 at the beginning of each school year for clothing, school supplies and any extras they wanted for their school activities.

Then I gave them each $40/month. With that money they were responsible for buying birthday or Christmas presents and anything else they wanted {like movie tickets, frozen yogurt with friends etc.}.  They were expected to help out around the house and would also help me run errands, etc., but I gave them the money less as payment for that and more to teach them how to manage their money. I tried not to police what they bought, so when they were out on their own, they’d hopefully have an idea of how budgeting works.

Regardless of what side of the issue you’re on, I thought you’d find an article I recently read interesting. It was an older article by T.Rowe Price about a study they had done. It basically said that kids who receive an allowance grow up to be more money savvy than those who don’t. But there was a catch. That is only true if the parents then go on to talk to their kids about that allowance and help them understand how to spend wisely and budget. Basically, give them the allowance and use it as a teaching tool. The parents who did that had kids that were:

More knowledgeable about managing personal finances (46% vs. 14%).
More knowledgeable about investing (33% vs. 8%).
More likely to say that their parents did a good job teaching them about money (67% vs. 32%).
More likely to understand the value of a dollar (92% vs. 84%).
More likely to discuss saving for college with their parents (62% vs. 45%).

Kids of parents who have frequent discussions and provide the highest number of learning opportunities are significantly more likely to think they are smart about money (70% vs. 15%) and kids of parents who have frequent money discussions and provide the highest number of learning opportunities are significantly more likely to have knowledge of managing personal finance (68% vs. 0%).

If you were on the fence about an allowance, do those numbers change your mind? Do you think they are onto something?

~Mavis