Is Allowance Synonymous with Free Money?
It is unknown just how early the concept of allowance was started, but we do know that one advocate, Lydia Maria Child, was rather vocal on the topic in the early 1830s. She, along with other proponents, believed that allowance was a tool that taught children financial responsibility. The idea was that allowance should be used to teach children how to manage money, which included savings, but was not focused solely on savings. Allowance advocates at the time believed that teaching children to be fiscally responsible was the same as teaching them proper hygiene practices, study habits, sleeping routines, healthy eating, etc. Essentially, they believed that financial concepts and managing money were a life skill that needed to be taught to children starting at a young age.
In my young childhood years, allowance was given as a result of performing tasks or chores around the house. It was offered during the elementary years, where ‘wants’ were increasing, but job opportunities could not be obtained due to age. It was meant to teach respect for money and the value of a dollar.
On the flip side of the allowance discussion, there were people in the 1800’s who did not agree with tying allowance to completing chores or as a good or bad consequence for behaviors. These allowance advocates felt that allowance should be given to children for them to manage, or budget, certain areas in their lives. They argued that basing allowance on children’s chores or behaviors removed the idea of family and personal responsibility.
One thing is clear, the original concept of allowance, whether it was tied to performing chores or not, was not synonymous with free money. Its original inception was meant to induce fiscal responsibility in children by teaching them respect for money, the value of a dollar, and how to budget or manage money.
Here at PAFS’, we encourage allowance to be used as a tool to teach children financial concepts and how to manage money. Personal finance is a lifelong skill that is as equally important as learning personal hygiene, respect for property, study habits, sleeping, eating healthy food, exercising, etc. Additionally, starting kids at a young age allows for repetition.
It is unfortunate that many people have a one and done attitude toward learning personal finance. In other words, many people believe that if they have read a book, or completed a 12-week study about personal finance, then they have learned all there is to know about personal finance. That one and done idea is passed along to their kids, too. Rarely is a concept learned in one book or one study. When a person wants to understand and be well-versed in a topic or subject, they study it in-depth and over and over. Repetition is the cornerstone of learning. As kids are reintroduced to the same concepts each year, new and more in-depth information, can be learned. Starting them young will lay a solid and well-rounded foundation in financial concepts.
Some families may find it difficult to add an allowance to their budget. When this is the case, PAFS’ suggests using play money such as Monopoly money, or PAFS’s play money, which is offered for free on our website here. Play money can be used the same as allowance by simulating income received and expenses that need to be paid and by creating an imaginary budget. Imaginary expenses can be created that children can relate to. Each week kids can then receive their ‘allocation of income’ and complete their ‘expenses’ by entering transactions, teaching them how to budget. PAFS’ My First Budget Planner is a great, year-long tool that can be used to teach budgeting fundamentals in a real, hands-on way.
Whether allowance should be tied to performing tasks is up to each family. Many studies support both sides of the discussion. Some families may refer to allowance as ‘earned income,' while others do not. Some families let their children earn money for tasks that go beyond common chores. Other families have their children manage funds that are already allocated for certain living expenses such as clothing or toiletries. The focus is not how the allowance is given or what it is called, but that allowance is used as a learning tool to teach personal finance. If kids come away with understanding personal finance, knowing proper terminology, and can manage their finances in all aspects, then they are one step further ahead on the path of financial literacy.