Allowances and Alternatives

from Minnesota Extension Service University of Minnesota

How money was handled in your family when you were a child will greatly affect how you handle money with your children. All of us have attitudes and feelings about money which are based upon our observations and experiences as children. It's very important for parents to use a consistent approach to giving their children money and how they teach them about earning, spending, sharing, saving, and borrowing money.

There is no right or wrong way to provide children with money. Each method has advantages and disadvantages. Because each family's financial situation is different, choosing a method or a combination of methods is a family decision.

Before any decisions are made about how or if children should receive money, each parent should identify and discuss his/her attitudes and values about money. Here are some questions to think about -

1. What does money mean to you?
2. What good memories about money do you have from your childhood?
3. What bad memories about money do you have from your childhood?
4. If you had an allowance, what were the rules about it?
5. If you didn't have an allowance, how did you receive money?
6. What feelings do you associate with how you received money?
7. What attitudes or feelings about money have you carried into adulthood based on your family's approach to money when you were a child?
8. Which of your attitudes about money do you want to instill in your children?
9. What other attitudes about money would you like to instill in your children?

There are four main ways children receive money - allowances, the dole, cash gifts, and earnings. Cash gifts are often received on special occasions such as birthdays or holidays.

Earned money involves being paid for completing a task. The dole is money parents give children on request, and an allowance usually means giving a child a specific amount of money on a regular basis.

Each of these ways has advantages and disadvantages to consider. The topic of allowances is often a source of debate between parents. Here are some advantages about allowances to consider: Getting an allowance teaches basic money management, promotes independence, encourages communication, and provides the practice of living on a regular income. Allowances can promote a sense of responsibility, teach the value of money, and create an atmosphere to encourage planning and setting goals. Children can be taught to learn from their mistakes and it forces parents to define what kinds of expenses belong to the children and what spending is allowed and prohibited by family values.

Allowances do pose some disadvantages. It can be difficult for parents to determine what amount of money a child can manage, and it can become a power issue if used as reward and punishment. An allowance can cause disagreement between parents if they don't have a united approach to both handling money and parenting children. If linked with household chores, a child may learn that money is the only incentive to do things. Parents may feel pressured by their children to give an allowance and it doesn't always work well with teens as a way to teach money management skills. An allowance system may not always be consistent if parents forget or don't follow through on the agreement. Allowances can also cause disagreement between family members about whether or not an allowance should be earned.

Guidelines for allowances are determined by your family's attitudes and values. No matter which allowance system you choose, good communication, consistency and guidance are necessary to make the system work. If you would like further information about allowances and alternatives, call your local county extension office and request the publication, "Children and Money - Allowances and Alternatives". There may be a small charge.