Why you should rethink allowance.
WRITTEN BY NEVIN MARTELL | PUBLISHED in the February 2018 issue of Washingtonian
Introduction by Jessica Ness, CFP®: Education is a passion of mine so I was thrilled when Washingtonian asked for my help on this article. As the mother of two boys, I have a vested interest in teaching the next generation valuable financial skills like budgeting, delayed gratification, and the value of $1. As a CFP, I know that allowing children to practice those skills enables them to become financially stable adults. There are many strategies one can use to teach these financial skills and build positive paradigms around money, and this article has great tips on how to handle an allowance.
When I was a teenager, my dad cracked down on me in one of the most effective ways possible. I had refused to do an enormous amount of extra yard work he’d ordered and, worse, talked back. So he suspended my allowance until further notice. But within the week, he offered to reinstate it as long as I apologized and complied with his request. I caved. That interaction taught me a powerful truth: Money is a way to leverage power over other people.
I know my parents tried to teach me good financial management—and some life lessons—by withholding my allowance when I didn’t do my chores, wasn’t well behaved, or came home without good grades. But as a result, money has always been freighted with emotion for me. I resented my dad’s unfair request and felt like my allowance was tainted ever after. Had I earned it? Or had I just acquiesced in the right way? I don’t want to set up the same dynamic with my five-year-old son when he starts getting an allowance.
Lori Atwood has heard stories like mine over and over. A certified financial planner in DC, Atwood has a radical suggestion for parents who don’t want to pass on their financial neuroses: Separate your children’s allowance from all their other obligations. “If money is used as a yo-yo—‘I don’t like this or I don’t like that, so I’m going to cut your allowance’—then that’s not going to help them form a healthy relationship with money,” she says.
Atwood isn’t suggesting that my son can mouth off, come home with Fs, and refuse to empty the trash without consequences—he simply wouldn’t lose his allowance as a part of the punishment for doing so. This approach removes a lot of the subjective elements of the financial arrangement, so your child can be as objective as possible in learning about money.
But how much should you dole out? Jessica Ness, a senior financial adviser with CJM Wealth Advisers in Fairfax, recommends that parents flip the question by discussing what they expect the child to buy with the money. Maybe Mom and Dad will be responsible for basic clothes and a cell phone but not designer wear or in-app purchases. “You give them enough so they have to practice budgeting, delayed gratification, and prudent decision-making,” says Ness, “but not so little that they keep coming back to you when they want to go out.”
Failure is a part of learning about money. You should give your children space to weigh choices about how to spend their money—and sometimes make the wrong ones. Says Atwood: “You want your child, not in a cruel way, to experience buyer’s remorse over something small, like a sticker book, rather than over a Porsche when they’re in their twenties.”
Ness suggests that parents make the effort to pay younger kids in cold, hard cash. “They need to see it in a tangible way because money is so hard to understand as an abstract concept.” Ness keeps $50 in $1 bills from which she draws her six-year-old’s allowance. Even parents who rely mostly on debit and credit cards should take this approach, she says. When kids want to buy something, they give you the money. You, in turn, use a card, keeping the cash in circulation for future allowance payouts.
Another common problem is the one that Anna Bran-Leis of Springfield sometimes faces with her nine-year-old son and 18-year-old daughter: “They’ll say, ‘But my friends can . . . .’ or ‘But my friends have . . . .’ Keeping up with the Joneses starts pretty early.”
That kind of status consciousness can place parents in a difficult position. Ness advises encouraging kids who are old enough to get a part-time job so they can earn more money for items parents won’t provide for them.
A job will ultimately help wean a child off an allowance altogether. When the child becomes a teenager and his or her needs get even more expensive, Atwood says families should sit down to go over exactly what the adults will cover: “This conversation is the basis for your financial relationship with them in college. They’re going to need spending money, but you don’t want to become an ATM.”
I haven’t even paid my son his first allowance, and I’m already figuring out how to stop giving him one! But I’ll tell you one difference between his childhood and mine: I won’t strip him of his allowance if he resists raking leaves. I’ll just ground him. We can go over his budgeting goals while he’s stuck at home with me and his mother.