Does paying children an allowance really work?
Pretty good chance your parents paid you an allowance, probably to get you to do chores around the house. It was often accompanied by a conversation about the value of hard work and how you would learn important lessons on how to save money.
Maybe they were wrong.
According to new findings, paying children an allowance can do more harm than good when it comes to their future financial literacy skills. According to Lewis Mandell, a professor of finance at the University of Washington who recently studied more than 50 years' worth of allowance research, "The kids who receive (a regular, unconditional) allowance tend to think far less about money in general." In fact, he adds, those children appear more likely to grow up to be "slackers," since they aren't learning to associate work with money.
Other experts say paying children for chores around the house can also lead to problems because it teaches them that working for money isn't fun.
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. "Most parents don't want to do it because they don't have much time," he adds.