Childrens' Allowance

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Re: Childrens' Allowance

Postby Rodc » Fri Apr 05, 2013 8:11 am

One of the things that strikes me, if I may stray just a little, is that parenting is a lot like investing for retirement.

It is a long term project, often with ups and downs, sometimes wildly so, with the outcome uncertain and only partly within our control. We don't control the ups, downs, or decisions of Mr. Market, just as we have very little actual control over the ups, downs, and decisions of our children (which is a good thing in the end). No matter how hard we plan or maneuver we can't get around this fact. In both cases many folks would rather not admit this is true.

Like investing, one can put great deal of effort into trying to make parenting scientific, similar to everything from (pseudo) scientific technical analysis to factor regression for portfolio construction, to consumption smoothing modeling existing in parenting literature. However, like investing, the unknowns and individuality of each child and family likely make the results less than entirely useful, and may even in some cases make things worse.

In the end, like investing, all that is really needed is to get a couple of big things right, and avoid making really big mistakes. Do that and in the long run things are very likely to work out just fine.

How to manage allowance or similar issues, while interesting and worth some thought, are a bit like trying to decide on the exact split between Total US and Total World ex-US: anything in a broad range is fine.

This is good news. Our kids are not that fragile. Like the split between TSM and ITSM, we can make some decision and move on without losing sleep and be comfortable we are doing a decent job.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Childrens' Allowance

Postby tadamsmar » Fri Apr 05, 2013 8:21 am

More on the allowance research, plus some other viewpoints:

http://money.usnews.com/money/personal- ... -allowance

According to Mandell's review of decades of research, children who have to ask their parents for money each time they need it, whether it's for clothes or lunch, tend to fare better with money later in life.


Mandrell says that the parent needs to put time and effort talking to the kid about money, allowances alone don't improve financial literacy.
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Re: Childrens' Allowance

Postby Rodc » Fri Apr 05, 2013 8:26 am

tadamsmar wrote:Turns out there is some research on the impact of allowances on financial literacy:

1. Allowance in general does not appear to lead to increased savings or financial literacy. Children who receive unconditional allowances appear to be less financially literate than those who receive no allowance at all.

2. If you do give an allowance, it should be linked to household chores. Speak with your children about money and the lessons they should be learning, like the purpose and rules of the allowance. Share your family’s financial constraints so your children don’t see allowance as an entitlement.

3. If you do allowance poorly, you’re setting your kids to be worse off than if you didn’t do it at all.


http://www.learnvest.com/2012/01/money- ... than-good/

The research was not a controlled prospective study, so it does not prove that a unconditional allowances caused the financial literacy. I suppose that parents that choose to give unconditional allowances could have a tendency to do or fail to do other things that lead to lower financial literacy.



Can't this simply be summed up with a little cut and paste as:

If you do allowance poorly, you’re setting your kids to be worse off than if you didn’t do it at all. If you do give an allowance speak with your children about money and the lessons they should be learning, like the purpose and rules of the allowance.

Does anyone believe that giving money with no discussion and guidance is proper? I know people do that, but I don't think anyone here is advocating for that.

I am also reminded of nisi's frequent exhortation that direction is not everything, you need to factor in magnitude.

The potential up side and downside of different allowance policies, especially for young children are modest it seems to me within a wide range of reasonable approaches. We are not discussing large trust funds.

The take away here I think is a good one: Make sure your children understand your parenting policies. In this case why they receive or do not receive an allowance, what any allowance is for and any restrictions, how to manage their money (allowance, birthday money, etc.), what chores they must do and why they are expected to do them, why they are expected to do well in schools, and how all these things are linked within your family. That seems rather more important than the actual allowance itself.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Childrens' Allowance

Postby Rodc » Fri Apr 05, 2013 8:38 am

tadamsmar wrote:More on the allowance research, plus some other viewpoints:

http://money.usnews.com/money/personal- ... -allowance

According to Mandell's review of decades of research, children who have to ask their parents for money each time they need it, whether it's for clothes or lunch, tend to fare better with money later in life.


Mandrell says that the parent needs to put time and effort talking to the kid about money, allowances alone don't improve financial literacy.


I think those quotes would benefit from the material immediately following:

"But is there a smarter way to pay children an allowance, so that they learn how to handle money at an early age? Mandell says parents should talk about family finances with their children when they pay an allowance. "Allowance can be used very constructively, but to use it constructively requires time, effort, and a degree of honesty on the part of the parent," he explains."

Basically in the first quote he is saying doing allowance very poorly leads to worse outcomes than no allowance. Then he follows that by explain how to do allowance well. I think the overall message is that allowance, done with some thought and follow through is beneficial.
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Re: Childrens' Allowance

Postby tadamsmar » Fri Apr 05, 2013 9:49 am

I think you are right that my summary was lacking.

Relative to paying an unconditional allowance:

1. Linking the allowance to chores increases financial literacy by about 10%.
2. Paying no allowance increases financial literacy by about 10% because the parents end up talking more about family finances and the kid ends up absorbing more.

So, if you both link and talk then you should get even better results than merely doing #1 or #2.
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Re: Childrens' Allowance

Postby tadamsmar » Fri Apr 05, 2013 10:08 am

Rodc wrote:Does anyone believe that giving money with no discussion and guidance is proper? I know people do that, but I don't think anyone here is advocating for that.


Apparently it happens. About 10% of the parents were giving money without links to chores and reducing financial literacy. Also, look at the OP. One of his goals appears to be reduce the annoying interactions with his kids about money by giving them an allowance. But the finance professor seems to be saying that these interactions are beneficial. Of course the OP also states goals to improve financial literacy.
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Re: Childrens' Allowance

Postby Rodc » Fri Apr 05, 2013 11:43 am

tadamsmar wrote:
Rodc wrote:Does anyone believe that giving money with no discussion and guidance is proper? I know people do that, but I don't think anyone here is advocating for that.


Apparently it happens. About 10% of the parents were giving money without links to chores and reducing financial literacy. Also, look at the OP. One of his goals appears to be reduce the annoying interactions with his kids about money by giving them an allowance. But the finance professor seems to be saying that these interactions are beneficial. Of course the OP also states goals to improve financial literacy.


It does happen and looking back you were right to point me to the OP.

I do think one side advantage of an allowance is that it can make life a little easier by moving some responsibility to the child, but the focus should be on teaching how to be responsible. Discussions of what is and is not a good purchase, and having the child make the call within the constraints of what they have saved are more pleasant than being lobbied.
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Re: Childrens' Allowance

Postby jon-nyc » Fri Apr 05, 2013 12:14 pm

tadamsmar wrote:Turns out there is some research on the impact of allowances on financial literacy:

1. Allowance in general does not appear to lead to increased savings or financial literacy. Children who receive unconditional allowances appear to be less financially literate than those who receive no allowance at all.

2. If you do give an allowance, it should be linked to household chores. Speak with your children about money and the lessons they should be learning, like the purpose and rules of the allowance. Share your family’s financial constraints so your children don’t see allowance as an entitlement.

3. If you do allowance poorly, you’re setting your kids to be worse off than if you didn’t do it at all.


http://www.learnvest.com/2012/01/money- ... than-good/

The research was not a controlled prospective study, so it does not prove that a unconditional allowances caused the financial literacy. I suppose that parents that choose to give unconditional allowances could have a tendency to do or fail to do other things that lead to lower financial literacy.


Not to mention its unclear how significant the differences were:

"Those who received no allowance had the highest mean financial literacy score of 52.5%. Those who received an allowance dependent on chores followed closely, at 52.1%. But those who received an unconditional allowance—in other words, those children who parenting experts say should have the best money habits—had the lowest rates of financial literacy (49.1%)."
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Re: Childrens' Allowance

Postby tadamsmar » Fri Apr 05, 2013 12:50 pm

You are right, I misread it a thought there was a 10% decline. But a 3% decline might be just noise depending on the size of the study. And not a very big effect even if it is real.
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Re: Childrens' Allowance

Postby tadamsmar » Fri Apr 05, 2013 2:28 pm

The sample size of the 2000 survey used in the allowance study was 723.

Here's info on these surveys that are completed every 2 years:

http://jumpstart.org/survey.html

Here's the 2008 report:

http://www.jumpstart.org/assets/files/2 ... eyBook.pdf
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Re: Childrens' Allowance

Postby Dandy » Fri Apr 05, 2013 6:38 pm

An allowance is a great way to teach children the value of money, the rewards of saving, even spending money wisely. I think it should be seperate from
chores. To me chores are what you do as a member of the family. It is probably good to define what expenses the child is expected to pay for out of their allowance. Not an easy thing for a 3 and 5 year old. Gear the amount to what they are expected to buy. 50 cents? $1? .

I would try to have something that they might spend it on at least every couple of weeks - at that age saving for the long term is a couple of weeks. Let them make some mistakes e.g spend it all in one day on a poster. Good way to learn early that impulse buying doesn't always satisy. I would gently guide and do post mortems on their spending - time for praise and gentle lessons learned.

Good luck
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Re: Childrens' Allowance

Postby epilnk » Sat Apr 06, 2013 3:31 am

Dandy wrote:An allowance is a great way to teach children the value of money, the rewards of saving, even spending money wisely. I think it should be seperate from
chores. To me chores are what you do as a member of the family. It is probably good to define what expenses the child is expected to pay for out of their allowance. Not an easy thing for a 3 and 5 year old. Gear the amount to what they are expected to buy. 50 cents? $1? .

I would try to have something that they might spend it on at least every couple of weeks - at that age saving for the long term is a couple of weeks. Let them make some mistakes e.g spend it all in one day on a poster. Good way to learn early that impulse buying doesn't always satisy. I would gently guide and do post mortems on their spending - time for praise and gentle lessons learned.

Good luck

I started my 4 and 3 year old with $.75 and $.50, and let them spend it at the dollar store. The amounts forced them to save up for each purchase, and the fixed price simplified the math and decision making process (I paid tax). At that age the dollar store is a wonder: if you've got a dollar you can buy anything - toys, cleaning supplies, novelty pens, cake mix, tools - the range of choice and control is mindblowing to a preschooler. But the vastness of the choice is overwhelming, and a challenge to navigate. At first they made the obvious choice - they both bought toy guns with their first dollar. But they soon began to ponder whether they'd rather have a toy or a bag of chips? Will that gun break as quickly as the last one? If chips, the 11 oz or the 14 oz? Is the big bag of chips really a better deal than a smaller bag of chips with better flavor? (For a brief time after he discovered units my boy stubbornly insisted on buying whatever bag had the largest number, whether he liked the product or not.) So much to think about and struggle with. Eventually they decided on their own that a $7 gun at Target was a better deal than a $1 gun from the dollar store, and was worth saving up for.
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Re: Childrens' Allowance

Postby Saving$ » Sat Apr 06, 2013 5:02 pm

Rodc wrote:When you were young did your parents ever buy you something you did not absolutely need? Because you wanted it?

If so they gave you money (or things that cost money) for nothing. Or when you were 5 did they never buy you something unless you first did chores?

Virtually all parent give their kids money for non essentials. We just choose to call it by different names or do it in slightly different ways.

I have known many who did not get an allowance; they simply got money in more ad hoc ways that likely did less to help them learn to handle money. Most turned out fine by the way. This is not some super critical aspect of parenting.

If someone wants to tie to chores that is fine. Not the lesson I want to focus on, in that area I want to focus on we help each other.

My kids get food, shelter, all the things they need and a few things they want. That seems to be what you should provide for your kids, that is the right thing to do. It is because that is what responsible parents to. I choose to fund some of the wants through allowance. Other things I pay for directly. Allowance is not simply for breathing.


+1
The "No allowance" group with whom I am familiar also end up treating their children with less respect - it is always the parents decision if the child is going to get something when it is not a holiday. Child wants to go somewhere with friends that costs money - parent makes decision. Child wants something - parent makes decision. Allowance is a way to get move this decision making to the child, and teach them that resources are finite.

I got 25 cent a week, usually on Saturday. I had to put 10 cents into the collection at church on Sunday. I had to save another 10 cents to put in the bank at every Friday's bank trip (days before ATM's, etc.). I could do anything I wanted with the other 5 cents.

When I got to be 10 or so it increased to $1 week, and at some point, went to $10 month. Similar charitable and savings requirements, but my responsibilities also increased. I could pack a lunch from the food at home, or buy a lunch at school with my own funds - either way, there was no parental involvement. If I wanted to join an after school sports league that cost money, I paid. By the time I was 12, my father told me his yearly budget for my clothes (excluding shoes) was $60. Once he had spent that, he would not be spending any more. I could select my own clothes, but once the $60 was spent, I would need to buy any more out of my allowance or earned money. He continued to buy shoes as I grew out of them as that was rather unpredictable. My tastes exceeded my allowance, so I started mowing lawns & washing cars, and learned delayed gratification. I also learned to account for what I spent.

I do recall saving for a fancy bicycle, as I felt I had outgrown the one I received for my 8th or 10th birthday. I saved and saved. When I reached $40 or $50, my father said he would match the balance of the bicycle savings at 50%. When I thought I reached the goal, he took me to the bike store and I was SO excited. I had not accounted for sales tax so I did not have enough to buy the bicycle. We left the store and went home - I was quite disappointed. I started hustling the neighborhood to mow more lawns. That week my father told me he would lend me the money for the sales tax, provided all allowance and earned money went 100% to pay my debt until it was paid, and until it was paid off, he "owned" the bike and put more limits than usual on how I could use it. I got the bike the next weekend. I learned very valuable lessons in that incident that I remember to this day: 1. Do your research - find out the total cost. I had been in that bike shop admiring that bike 8 or 10 times. I never asked about the total cost out the door - I had only planned on the cost on the tag hanging from the handlebar. 2. Have a plan B. 3. Pay your debts off immediately, or ASAP.
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Re: Childrens' Allowance

Postby avalpert » Sat Apr 06, 2013 6:10 pm

Saving$ wrote:
+1
The "No allowance" group with whom I am familiar also end up treating their children with less respect - it is always the parents decision if the child is going to get something when it is not a holiday. Child wants to go somewhere with friends that costs money - parent makes decision. Child wants something - parent makes decision. Allowance is a way to get move this decision making to the child, and teach them that resources are finite.

-1
I am also familiar with families that do not give allowance who treat their children with the utmost respect, provide the kids plenty of leeway to make there own decisions - and parents who are overly judgmental of other parents that pass on horrible social skills to their kids. There are many ways to involve your kids in decision making and teach them about finite resources that don't involve allowance.
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Re: Childrens' Allowance

Postby HopeToGolf » Sat Apr 06, 2013 10:27 pm

My 7 year old got $7 (far too much...no raise when he turned 8). We pay for food and clothes and he pays for everything else. He is very tuned into finance and financial consequences. My only regret is he can be very focused on money and has a tip box in the house (thanks Starbucks) and keeps a notebook on his nightstand for his business ideas. The life skills he has learned from the allowance are good but I feel a little like he lost his innocence.
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Re: Childrens' Allowance

Postby jollystomper » Sun Apr 07, 2013 1:06 am

We gave allowance to our kids from around the ages of 8 through 16. The different reactions were interesting. For example, one child was always asking if they could do more to earn extra. Another child wouldn't care if they got "penalized" - at least until they noticed that the other kids had more money than they did.

Once they hit 16, the allowance stopped - it was "you want money, you can get a part time job". But they still had chores to do around the house - that was the "rent" they paid to live in the house and to be fed. :happy

I grew up without allowance but that was because my parents didn't have much money. So I was one of those kids who would go around earning money raking leaves, shoveling snow, etc. I wanted to give my kids a little easier life in hopes they would appreciate it, but the results have been mixed.
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Re: Childrens' Allowance

Postby Rodc » Mon Apr 08, 2013 9:07 am

I wanted to give my kids a little easier life in hopes they would appreciate it, but the results have been mixed.


That really is one of the biggest challenges in parenting, kids just react differently to the same situation.

There may be some big for sure things in parenting, but not many. Very few real one size fits all solutions.
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Re: Childrens' Allowance

Postby letsgobobby » Tue Apr 09, 2013 9:02 pm

renoJay -

We started giving $1 per week to my daughter when she turned 5. She also got her second chore on her birthday. They aren't directly tied as others have said, ie, this is not payment for work; but in general a failure to meet expectations leads to a failure to receive allowance.

We raised it to $2 per week on her 6th birthday 2 months ago. Sadly, last month we revoked her allowance for one month due to some very naughty behavior which involved disobedience, lawbreaking, and various other semi-nefarious deeds. So she's back to square 1. She was very disappointed to not have her spending money this past week on our cruise. Boy, the candy she missed out on buying!

Despite not really understanding the value of $1 or $2, she definitely values the privilege and 'grown up' aspect of receiving an allowance. And it drives her to realize that "$100" for something (say, a toy she sees in a newspaper ad) is "a ton of money."

For us it has the desired effect.

I grew up with an allowance and my wife did not.
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Re: Childrens' Allowance

Postby RenoJay » Mon Sep 16, 2013 11:02 pm

Thought I'd check in on this thread I started back in April. I've been giving my kids, 5 and 3, an allowance for a few months. My five year old likes to spend his money as soon as it comes in, but when we go to the store he's required to hold the money in his pocket, make decisions based on what he can/cannot afford, pay the cashier and be responsible for returning the change to his piggy bank. He might be a spender, but at least he's becoming a decent shopper. My 3 year old seems to lack material wants and has saved most of her money in her piggy bank. But today, I came home and realized my kids had swapped piggy banks because they each liked the color of the other's. The problem is that my five year old took all his money out of his bank, but also kept all the money that came with her bank! :oops: Fortunately my three year old had rolled all her one dollar bills into perfect little cocaine snifters, so it was easy to identify and repatriate the stolen bounty.
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Re: Childrens' Allowance

Postby RenoJay » Mon Sep 16, 2013 11:06 pm

Thought I'd check in on this thread I started back in April. I've been giving my kids, 5 and 3, an allowance for a few months. My five year old likes to spend his money as soon as it comes in, but when we go to the store he's required to hold the money in his pocket, make decisions based on what he can/cannot afford, pay the cashier and be responsible for returning the change to his piggy bank. He might be a spender, but at least he's becoming a decent shopper. My 3 year old seems to lack material wants and has saved most of her money in her piggy bank. But today, I came home and realized my kids had swapped piggy banks because they each liked the color of the other's. The problem is that my five year old took all his money out of his bank, but also kept all the money that came with her bank! :oops: Fortunately my three year old had rolled all her one dollar bills into perfect little cocaine snifters, so it was easy to identify and repatriate the stolen bounty.
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Re: Childrens' Allowance

Postby Sbashore » Tue Sep 17, 2013 11:14 am

backofbeyond wrote:My father gave us an allowance equivalent to what it costs to go to the movies each week. He was from the Greatest Generation, and the "show" was how they got their news as well as entertainment. I've continued this practice with my daughter.

It seems to be a great way to keep up with inflation/standard of living in the local area.

Agree, allowance is seperate from chores.


My parents did something similar. We were a large family, so money was scarce. We all got a very minimal amount each week. We also had chores that were separate and had to be done. We also had opportunities to work if we had a legitimate "want", so that we could obtain it or save for it. The work was substantial for the payment.
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Re: Childrens' Allowance

Postby Rodc » Tue Sep 17, 2013 1:59 pm

RenoJay wrote:Thought I'd check in on this thread I started back in April. I've been giving my kids, 5 and 3, an allowance for a few months. My five year old likes to spend his money as soon as it comes in, but when we go to the store he's required to hold the money in his pocket, make decisions based on what he can/cannot afford, pay the cashier and be responsible for returning the change to his piggy bank. He might be a spender, but at least he's becoming a decent shopper. My 3 year old seems to lack material wants and has saved most of her money in her piggy bank. But today, I came home and realized my kids had swapped piggy banks because they each liked the color of the other's. The problem is that my five year old took all his money out of his bank, but also kept all the money that came with her bank! :oops: Fortunately my three year old had rolled all her one dollar bills into perfect little cocaine snifters, so it was easy to identify and repatriate the stolen bounty.


:) I liked your story. Gave me a smile.
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