8/20/2012 2:15 PM ET|
Allowances: 'Welfare' for kids?
When children feel they're entitled to parental payouts, teaching the value of a work ethic, as well as sound financial practices, becomes even more important.
Giving your kid an allowance is supposed to be a good way to teach important financial values, like delayed gratification and the importance of budgeting.
So explain why:
1. High school freshmen who received allowances were no more likely to save money than those who didn't, and the allowance-getters were less likely to view work positively, a study indicated. In other words, allowances seemed to undermine the formation of a work ethic.
2. High school seniors who received regular, unconditional allowances (one not tied to chores) scored worse on a national financial literacy test (.pdf file) -- 49.1% correct answers -- than kids who received no allowances (52.5%) or allowances dependent upon chores (52.1%), according to a 2008 study by the National JumpStart Coalition.
3. Unconditional allowances are also associated with lower participation in the labor force. Nearly one-third of seniors who received such allowances had never worked in a paid job, compared with 20% of those who received no allowances, the coalition study said. Paid employment is associated with higher financial literacy.
4. High school seniors with no plans to attend college were more likely to receive unconditional allowances (25%) than the general population of seniors (10%), the coalition reported.
5. According to another study, most teenagers who received allowances viewed the money as either an entitlement for basic support or earned income, rather than educational tools that promoted smart financial habits later in life.
"They should at least have to do something unpleasant to get the money," Mandell said. "Then getting a job at McDonald's might seem better than having to cadge their parents for money."
Holy cow. As a parent who leans toward the unconditional-allowance end of the spectrum, I didn't particularly want to hear what Mandell (and all the research he's citing) pretty clearly states.
I know some parents are comfortable tying allowances to chores, reasoning it replicates the work world, where you get paid for your efforts. But I believe that chores are what you do because you're part of the family and that everyone needs to pitch in.
Still, I have to admit to seeing the entitlement mentality take root in our daughter, who's 8. The first time I heard her demand, "Where's my allowance?" I promptly instituted rules requiring her to finish her weekly chores before I paid up.
But she has yet to save much money, beyond the amount we require her to put in her credit union account. And if I tell her she can save up to buy the toy or game she's currently coveting, she quickly loses interest.
That's fine, for now. I'm not interested in training her to be a bigger consumer, even though I would like her to see the benefit of saving toward a goal. What really worries me, though, is the idea that her allowance may interfere with her work ethic.
A 1994 study by University of Minnesota professors indicated that high school freshmen who received allowances were less likely to view work as a source of "intrinsic satisfaction" -- in other words, to see the positive value of work -- as well as less likely to value the "extrinsic" benefits -- the money that could be earned.
"Parents and financial counselors need to be careful about undermining the development of work values through allowance practices," the researchers warned.
That finding concerns Mandell, too, since a good work ethic is so important to success, financially and otherwise. Not all jobs, especially those available to teenagers, will be fun, and the ability to persevere through "boring, dirty and exhausting" jobs, as he puts it, is important to later achievement in life. Not that I want my daughter necessarily cleaning houses to make ends meet, as I did in college, but I also don't want her flaking out when the going gets tough at work or in life.
Mandell, who is a fellow at the Aspen Institute and a visiting professor at the University of Washington's Foster School of Business, believes parents could make allowances more effective by talking to their kids about what lessons they're expected to learn -- and about how the family copes with financial matters in general.
Some families dole out money so they will have fewer interactions with their kids, Mandell said. Busy parents may see it as a way to head off whining or nagging, but simply handing over cash doesn't necessarily teach kids the right lessons.
Instead, parents should be looking for ways to:
1. Make their expectations clear, including what duties their children are expected to perform.
2. Talk about what they're hoping the allowances will teach, including the value of saving and budgeting. Parents should also talk about the importance of hard work, discipline and repetition in achieving success. Playing the piano for friends is fun, for example, but the fun part comes only after a lot of practicing and drilling.
3. Match their kids' savings, if possible, to encourage that habit.
4. Help children understand that money is a finite resource. Grade-schoolers may be too young to grasp how much of their parents' paychecks go to housing, transportation, utilities and other "must have" expenses, but an older child can be let in on the fact that the family's money stretches only so far.
"You don't just hand over $20," Mandell said. "You say, 'Here are your responsibilities, and here's why (we're giving you an allowance), and here's something about our financial situation. I know you'd like to get $30, but this is the best we can do right now.'"
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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