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Giving Kids an Allowance May Do More Harm Than Good — Dollars and Sense

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goodncrazy, Flickr

For years, the prevailing wisdom behind doling out allowances to kids has been that the practice helps children learn about budgets, which, in turn, leads to better spending habits when they grow up — assumptions that may not be true.

Lewis Mandell, professor emeritus of finance and managerial economics at SUNY Buffalo and a pioneer in the field of financial literacy, thinks allowances don’t teach kids a thing.

It’s a bit of an about-face for a man known for extolling the virtues of teaching kids about money in the classroom. But he’s concluded that most children simply aren’t equipped for a financial education because they don’t yet have ways to use the knowledge in a meaningful way. Rather than trying to make kids absorb that kind of information, he thinks resources would be better spent focusing on adults.

As for allowances, he says parents today are too busy to attach an education to the money, leading them to just hand it out with no discussion of what it’s for or how to manage it.

“Studies have shown that instead of encouraging good financial habits, giving an allowance is statistically associated with diminished financial literacy, lower levels of motivation and an aversion to work,” he wrote on the website LearnVest, citing research showing that children who received an unconditional allowance — instead of, for example, a monetary reward for chores and such — knew less about saving, spending and credit.

“Unfortunately, very few parents today have the time, patience, expertise and willingness to have the correct conversations with kids,” he concluded. “So, allowance continues to be mishandled. Given the choice between a mishandled allowance and no allowance, I’d choose no allowance every time.”

[Time]

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