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The Great Allowance Debate

The question of whether to give children an allowance has vexed parents since the turn of the 20th century. It’s an issue faced by each new generation of parents without any clear, universal answer, yet is an important consideration in financial literacy … even for celebrities and children of wealth.

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    The Great Allowance Debate

    The Great Allowance Debate

    The question of whether to give children an allowance has vexed parents since the turn of the 20th century. It’s an issue faced by each new generation of parents without any clear, universal answer, yet is an important consideration in financial literacy … even for celebrities and children of wealth.

    The Pros of Giving an Allowance

    The advocates of allowances argue several potential benefits, including:

    • Helps a child understand the value of money, especially if it’s tied to meeting a responsibility (e.g., completing assigned chores or achieving good school grades)
    • Children can learn some important adult skills, such as budgeting, as well as balancing spending and saving priorities
    • Fosters independence
    • Serves as an incentive to meet certain responsibilities, relieving the parent—and child—of constant reminders (aka nagging)
    • Teaches children about giving to those less fortunate if they designate a portion of the allowance to a charity of their choice
    • When children have some control over spending decisions, they are more likely to learn from their buying mistakes—lessons that will prove valuable into adulthood
    • Reduces stress on parents by reducing the number of requests for money

    Of course, an allowance needs to be appropriate for the age of a child and for what the parents wish to accomplish with an allowance.

    The Cons of Giving an Allowance

    There wouldn’t be much of a debate around allowances if there weren’t some substantive drawbacks to them. Among them are:

    • The risk a child may spend the money all at once and frivolously; to mitigate this risk, parents may want to go with a semi-monthly or monthly allowance, which may lead to better budgeting skills
    • Can become viewed as a right, especially when it’s not connected to chores or other goals
    • May undermine the importance of everyone’s responsibility, including the child’s, to contribute to the family when tied to chores
    • May strain the family budget

    The Commission Approach

    One middle ground idea is simply to pay a child based on commission. If they work, they get paid. If they don’t work, they don’t get paid. The commission approach could even be blended to address the hesitation to pay a child to meet household responsibilities. For instance, a parent can require that a child’s room be clean and tidy, and all homework done, before they can earn money by doing other chores, like raking leaves.

    Whatever approach parents take toward an allowance, they should avoid the common mistakes of being inconsistent, giving too much or too little, and not having the important money conversations that can prepare children for adulthood.

    Please reference disclosures at: https://blog.americanportfolios.com/disclosures/

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