Is an allowance a good teaching tool or is it ultimately limiting for children?
I have been rattling this question around in my brain for the last few months. I have several big concerns around giving kids an allowance. My first concern is that by tying allowance to the completion of menial, repetitive, and monotonous tasks, we train kids to be card carrying members of the rat race. Yet, If we do not attach allowance to any effort on behalf of the child I think this breeds laziness and a sense of entitlement. I also wonder if by providing an allowance, it limits kid's creativity when trying to figure out how to create cash-flow.
Conversely, I definitely see some benefit to providing children with an allowance. If you gave your children a flat rate at regular intervals you could use this money as an opportunity to teach specific financial lessons. For example, you could give your children a $200 per season allowance which they can only spend on clothing. This will teach kids how to plan and budget. Additionally, if the allowance is tied to some kind of task to be completed this will help kids to understand that they need to work in order to get money and that it isn't just given to them.
After weighing this out I have come to the conclusion that granting children an allowance is not the worst thing you can do, but that it really does not help your child to be innovative and creative. I feel that anything that trains children to be employees erodes creativity and limits a child's initiative. If kids know that they only have to do the dishes and they'll get the money they need to go to the movie - they are less likely to take the initiative and do something unique to earn the money they want. If they can get their immediate desires satisfied by the path of least resistance, then there is no need for them to be creative.
So how do you encourage your child to be a little more creative in how they make their money? Here are some ideas on how you can accomplish just that!
Encourage your children to start a business:
When I was a kid, two other girls and I started a driveway sweeping business. For $5 we would sweep your driveway. Our real stroke of brilliance was that we, three adorable little girls, would appear on your doorstep and rap: "We are the driveway Sweeping Team. We'll sweep your driveway nice and clean!" I believe that we even had a little dance number that went with it . . . but I digress. My point is we took the initiative to assess the needs in our neighborhood (dirty driveways) create a sales pitch (our rap) and provided a service (we swept the driveways). This resulted in us making a killing in exchange for a little effort and entertainment.
Having your kids start a business doesn't have to be an expensive, complicated, and time consuming activity. It can be as simple as discussing needs in the community, suggesting how the needs can be met and then encouraging kids to go out and meet those needs - for a fee of course!
If your child is interested in starting a business and you would like a little more guidance as to how to help them do that - see TrueSmarts' Advanced Kids Business activity, for some worksheets which will help your child get the creative juices and cash flowing!
Teach your children that there is always a way to make the money they need:
In later life it will be very comforting for your children to have an arsenal of techniques to make money. I am thinking of when your child is a young adult starting out, living on oatmeal and apples and trying to figure out how to balance the things they want against what they can afford. Teach your kids that they can always afford the things they want by showing them there is always a way to make money.
Showing your kids different ways to make money could be as simple as teaching them to turn in their pop bottles - or collect the neighbor's pop bottles and return them. Collecting spare change whenever they find it, rolling it and taking it in to exchange for bills and so on.
Or it could be a little more complicated, teach them to make extra money off of their particular skills and talents. For example, your son or daughter is a talented artist - they could make a couple dollars selling their art or drawing portraits. Or your son or daughter is really good at Math, Science or English they could make money tutoring other kids. There are a ton of ways that kids can use their talents to make money. By encouraging them to think this way you will be demonstrating to them that they will always be able to make the money they need to get the things they want.
Teach your kids to be smart consumers and save their money when they can:
A key aspect to always having enough money is being a smart consumer and learning how to save money when you purchase products. Being a smart consumer means that you have an eye for a bargain, you shop around, you research brands, analyze best value for dollar, and you are always looking for ways to save money on the things that you buy. This is a valuable skill to teach your kids as the secret to wealth is not just how much money you bring in, but how well you use the money that you have.
Show kids that if they do a little research, are a little patient and make a little effort they will need less money to buy the things they want and they will have more money left over for future purchases - or better yet savings!
Some ways that kids could save money could include looking for group deals on sites like groupon.com or livsocial.com - often you can get products or services for 50%-70% off. Also encourage kids to shop second hand or where possible at dollar stores. Show kids where to find coupons (either online or in the newspaper) and also demonstrate that the price of a product usually drops after it has been on the market for a little while.
Teach your kids to get their money to work for them:
It never hurts to teach your kids about investing at an early age. An investment could be in stocks and bonds and the like, but it could also be about putting money into things that will increase in value or into a small business that will bring them a profit. Essentially you want to teach your kids how to put a little money in, to get a lot of money back. This will allow your future adults to work smart, not hard!
If you choose to teach your kids about the stock market be open about how and why you invest. Show your children what you are investing in and why as well as how you chose your investments. Show your kids statements from your investments which demonstrate how they increase in value. If they show an interest in and an aptitude for investing in stocks direct them to Wall Street Survivor. This is an investing simulation game where kids are given $100,000 in virtual cash to invest. This site is also jam packed with educational resources. You and your child could both set up an account and compete to see who can turn the biggest virtual profit.
Another way you can teach kids to invest is by showing them how to put money into something so as to increase their profit. For example, if they are going to start a business tutoring people in computer repair, they should invest some money into their education (books, a subscription to Lynda.com, a class etc). The education increases the value of their service and will help them turn a profit.
They could also put money into materials for a business they are starting, maybe a gumball machine, to again increase or create cash flow. Direct your children to the Rich Kid Smart Kid website for a computer game called Reno's Debt Dilemma, it gives a great visual demonstration about good debt (investment), and bad debt (loss). Don't missout on the resources for kids and teens k-12 in the "Grown Ups" section of the Rich Kid Smart Kid website there are all kinds of educational goodies in there.
Money is a very powerful motivator, attitude shaper and teaching tool. When considering an allowance it is important to consider what attitudes, outlooks and lessons you would like to pass on to your child. Once you have prioritized the important skills, provide an allowance in a hybrid approach. Encourage kids to find interesting ways to create cash flow which is independent from your wallet, but also provide target specific allowances to teach kids key skills like budgeting and planning.
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