A clinical psychologist with nearly 30 years of experience, Dr. Shapiro is ready to answer questions, offer advice and share strategies to help you alleviate the mental stresses of money management. Send your question to GoodCentsDr@gmail.com and it may be answered in an upcoming column!
The Right Kind of “No”
The basic principle emphasized throughout our 3-article series on children and money (see part 1 Saving Money and Raising Children and part 2 Parents and Children’s Material Needs) is this: When parents say no to kids’ requests for purchases in a kind, balanced way, they are not hurting or depriving their children but, in fact, are facilitating their psychological development. This is not just my personal opinion or a nice sentiment; the principle is demonstrated by research on real parents and children.
In studies by the psychologist Paul Webley and his colleagues, adolescents who had some money saved at age 16 were more likely to have savings at age 21 and age 34, compared to 16-year-olds with no savings. These researchers also found that parents exerted significant influence on their children’s money-related behavior, and these influences were apparent years later. Young people whose parents modeled responsible money management, encouraged them to save, and taught them the rudiments of budgeting grew up to be adults who had less debt, more savings, and a generally stronger orientation toward the future. Thus, parents who guide the development of responsible money-related behavior in their children not only improve their own financial health, they improve their children’s future financial health, as well.
A Tool for Building Independence
In my first article in this series, I suggested that kids keep a running wish list, which can be used as source of gift-giving ideas for the parents and generous relatives. When kids see something they like in a story or online, and the parent needs to turn down this request, he can suggest the child write the item down on her list. (This helps prevent temper tantrums in stores.)
These lists can also be used as a tool for building the child’s independence and planning ability. In addition to waiting for birthdays or holidays, the child can save up for the item she wants to buy. Parents can use this suggestion to replace a power struggle with a challenge for the child—which is a more constructive use of her energy.
But where is she going to get the money? Teenagers can get jobs, but younger children can’t. So this brings us to the topic of allowances.
How Much and For What?
The first question is, how much should the allowance be? One reasonable rule of thumb says that a dollar per week for every year of the child’s age is about right.
I would suggest linking allowances to expectations for the child in an approximate way. The idea is that the child receives his allowance just for being a good citizen of the family. All he has to do is perform routine chores like walking the dog and setting the table, and he must behave in a basically acceptable way. This arrangement falls in between the extremes of paying the child for every little thing he does and giving him an allowance even when his behavior is totally unacceptable.
If the child refuses to do chores or misbehaves in a major way, partial or full loss of her allowance makes an effective negative consequence. (Allowances provide tools for behavior control; it’s a bonus for parents.)
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Parents need to decide what types of purchases should be made with allowance money. These decisions should depend on the child’s age and planning ability. Elementary school children should use their allowances for treats, luxuries, whims, and gifts for other people.
In middle school, as children become capable of more proactive thinking, parents can increase the allowance and stop providing money on demand for routine expenses such as school lunches and outings with friends. This raises the stakes by making it possible, for example, that a child’s lack of financial planning might make her unable to see a movie with friends. Such naturally occurring consequences teach planning and saving in a more powerful way than parental lecturing, but it means both you and your child must be able to live with the consequences of her failures to delay gratification.
Giving children an allowance should not result in a net financial loss for the family, compared to the spending that occurred prior to beginning the allowance. The idea is to give the child more control, not more wealth; financially, the parents and child should both break even. The larger the allowance, the more purchases the youth should make for himself, and the less he should ask his parents to hand out money.
With adolescents, parents can use a variation of the allowance to reduce power struggles and control spending on specific types of purchases for which they believe the teen’s appetite is excessive. For example, instead of repeatedly arguing about purchases of clothes, parents can establish a total clothing budget for a given period of time, for example, one school semester. The youth can draw down this sub-allowance at will, without justifying his purchases to the parents—until he runs out of money, when he must stop until the time period is up.
When parents review receipts for the youth’s past clothing purchases, they often realize they can substantially reduce this amount of money and still offer a figure the teen will find impressive. So she buys in, and the plan gets off to a smooth start.
Sometimes this is the end of the story, and a sustainable solution has been found, with everyone happier than they were before. The expensive tastes that used to be the parent’s problem are now the adolescent’s problem. Youth who used to resent their parents for being cheap now resent the producers of designer labels for selling overpriced merchandise. Sub-allowances get parents out of the business of micromanaging their teen’s wardrobe and bring teens face to face with real questions about what various brands and styles are worth.
Things get rocky if the teen runs out of money before the time period is over. He might then ask his parents for some “flexibility,” perhaps proposing this be considered an advance on the next time period’s sub-allowance. In this situation, the parents should shrug their shoulders and say there is nothing they can do; a deal’s a deal. There might be tears or yelling at this point, but the parents can interpret this (to themselves) as the sound of a child learning. When things go this way, young people eventually realize they did not understand how their expenditures add up over time—which is exactly the lesson they need to learn.
Paying Kids for Work
While it makes sense for routine chores to be linked to an allowance, parents can help kids learn about money and work by providing additional pay for large jobs that are not routine or that the parents would otherwise pay someone else to do. Pay for work can be cost-effective for parents, because children generally do not expect to be paid as much as professionals for jobs like yard-work and housecleaning. Working for parents provides the child with an increment of responsibility and wealth that is a half-way point to a real job, so this arrangement moves kids down the road of discipline and independence.
Some children seem born with a taste for working and saving to achieve material goals, and they get a type of satisfaction from this process that they don’t get from money and gifts that just rain down on them. For other kids, working and saving need to be acquired tastes that they develop over time and with encouragement from their parents.
Acquiring this taste might not be easy, but it is worth it. The Puritan work ethic helped make this country great, and the modern equivalent of it is still necessary for achieving long-term success in life. Allowances get kids started and give them practice in mastering this path to financial security.