5 Reasons You Should Give Your Kids an Allowance

Even Kids Need an Economic Stimulus Package

A few days ago I wrote about current recommendations for giving kids an allowance. 

You can read that post here.

Today I want to talk about why giving your kids an allowance is a good idea; beyond that, what specifically an allowance does for them.

Here are 5 reasons why you should begin (or regularly administer) and allowance for your kids.

1. Allowances help kids learn money management.

As I mentioned in the first post, it’s hard to manage money you don’t have.  A child can’t be expected to manage $5 for an entire week when the relative buying power of $5 is nearly non-existent.  For a pre-teens and older, the $1/week per year of age model addresses this issue.  Having enough money to manage is the first step in learning sound (yet elementary) money management skills.

There are several kid-friendly checkbook type tutorials available to teach kids to keep good records. You can find printable checks, deposit slips, register, even a checkbook cover with instructions here. It might be a good place to start. I also recommend MoneyInstructor.com as a good resource. It’s a site that includes suggestions for teaching these principles of money management.

2. Allowances help kids make sound buying decisions.

When I was a kid, I was a saver. Both my older sister and younger brother came to me to borrow money because they were always out of money.  They were spenders. Looking back on this I think I saved because I was told to.  Being the middle child, I learned from the rebellious nature of both siblings.  When it came to money, I simply did what I was told. In the process, I learned to make better buying decisions. Kids given enough weekly allowance to manage can make better buying decisions. These decisions also include the decision to save their money or at least a portion of it on a regular basis.

3. Allowances increase a child’s self-esteem.

Having some walking around money in your pocket is an empowering feeling for kids.  A natural outcome if this is enhanced self-esteem.  It feels good to have money!  Having a regular allowance allows kids to feel good about their limited financial picture on a prolonged basis. Additionally, when they achieve a savings goal they feel positive about their accomplishments.

4. Allowances, when linked to chores and responsibilities, help create a sound work-ethic.

Allowances should always be linked to responsibilities. The age of your child will determine the level of responsibility they can handle.  Given that each child is different, guidelines for these are best left up to parents and caregivers.  Still, it feels good to get paid for something you’ve done. This is true for both kids and adults. Getting paid for work completed can also be tied to higher self-esteem and positive reinforcement of a developing work ethic.

5. Allowances help kids get over the ‘pocket-burning’ syndrome.

Pocket burning syndrome is that feeling that you must spend all of your money as soon as you receive it.  Little Elvis currently suffers from this.  Having some money or a gift card from Circuit City demands he go somewhere and spend it.  This is something we’re working on by raising his allowance.  Having $12 per week as an income allows him to save a bit, spend a bit, and understand the relationships between the two activities.  We’ve got a ways to go, but at least we’re moving in the right direction.