Pros and Cons of Giving Kids an Allowance

A child holding money while looking up pensively

When your child’s old enough to begin doing chores, you may want to give them an allowance. Some parents believe an allowance teaches kids about money management techniques and the importance of saving. Other parents feel that children should do chores and contribute to the family without financial incentives.

Both points are valid, so give each perspective some thought before making your decision.

Pros of Offering an Allowance

Providing your children with spending power can give them a foundational understanding of money. Here are a few of the main advantages of embracing an allowance.

1. Teaches Kids About Finances and Budgeting

Many parents who give their kids an allowance also make their children pay for non-essentials, such as outings with friends or toys. When kids pay for these luxuries themselves, they learn about budgeting and planning. They have to save their money to make a purchase, and in doing so, learn how to make sacrifices.

For example, a child may skip ice cream with their friends to save up for an expensive electronic. They may forgo that experience, but there’s a reward for their patience and planning.

2. Forms a Connection Between Work and Payment

Many parents withhold payment until their kids complete all their chores. This kind of system encourages children to take responsibility for getting tasks done in a timely manner. They’re aware that when they complete their chores, they receive money, and when they skip their chores, they receive nothing. Kids catch on quickly that it pays, quite literally, to get those chores done.

3. Encourages Children to Think About Where Their Money Goes

When a child gets an allowance, they decide what to do with it. They could bike to the local convenience store and spend all the money on candy bars, or they could put it in their piggy bank to save for a special occasion. Whatever they decide to do with their money, they enjoy complete control of how it’s used.

If a child has never enjoyed this responsibility before, it’s a significant change. Before, when they asked you for money, they didn’t necessarily understand where it came from. With an allowance, they realize they need to take out the trash at least one time to download five new songs to their phone. Making that connection can motivate them to work harder.

You can also encourage your kids to give some of their money to charity. By allowing them to select the cause and helping with the donation itself, you demonstrate the importance of giving and show the impact of their choices.

4. Provides a Chance to Demonstrate the Save, Spend, Share Concept

Every transaction can be a chance to teach life lessons about money to your children. To that end, an allowance presents an opportunity to explain the save, spend, share concept. Divide the money into three jars.

  • The first jar is for savings. They’ll save that money for the future.
  • The second jar is for spending. They can access this jar and spend the money as they wish.
  • The third jar is for sharing. They can donate this money to their favorite charity.

With this method of distribution, there’s something for everyone, and your child learns to balance their income in an easy-to-understand way.

Cons of Offering an Allowance

Some parents feel that an allowance turns a family duty into a commodity. From that perspective, there are a few serious disadvantages to giving a child an allowance.

1. Undermines the Importance of Voluntary Family Contributions

Many parents believe children should do chores because they’re working on behalf of the family unit. As a result, they feel that kids shouldn’t be motivated by monetary gain, but rather help out of their desire to assist their parents and siblings.

Paying an allowance can turn something a kid did voluntarily into something they’re rewarded for doing. This can set kids up for unfair assumptions. They may expect to be rewarded in other situations, as well, like when they finish a project at school.

Some parents feel that family duties should be separate from rewards. Families should be pulling for each other and trying to succeed together. If you only do chores because you get paid, you miss out on an essential element of the family dynamic — the give-and-take.

2. Leads to Poor Financial Decision-Making Without Proper Guidance

If you give your child an allowance but don’t oversee what they do with that money, they could make poor decisions. After all, children tend to be impulsive. They might see something that looks fun at the moment and spend a lot to buy it, only to get a bad case of buyer’s remorse later on.

The counterargument, however, is that children can learn from poor decision-making. They won’t make the same mistake again once they’ve been disappointed. The next time they buy something, they may do more research or even wait a longer time to buy the item to ensure they really want it.

The right choice for each family will likely differ. You may find your child responds well to the responsibility and trust involved in receiving an allowance, or you may discover a different system is ideal. There’s no right or wrong approach for an allowance, as long as you put careful thought into the decision. You might even want to work out a system so that some chores are done for the good of the family, while others are done for compensation.

Whether you choose to give your child an allowance or not, it’s never too soon to give them a savings account of their own. Our youth savings share gives your child a safe place to stash their cash and carries a special higher-yield savings rate. If you’re practicing the save, spend, share model described above, you can even open additional shares in their account and rename them for the goals your child has set.

To get more tips on teaching kids about money, visit our WalletWorks page.

Become a Member

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.