2. Many parents believe that children learn to manage money by giving them money. As stated above, that is false. They learn to manage money based on the way that parents manage money. If parents can control the number of any item they buy (for example, women and shoes) and the prices they pay for them, it shows them what type of spending is acceptable, what acceptable price points are, and to have patience to wait for those price points if the item is a necessary want. For example, a child will learn that keeping 5 shoes and paying $100/shoe is acceptable if they see parents doing it. If a parent buys only 1 shoe/yr and pays $35/shoe, then the child will find that acceptable. Especially because when parents who don’t give allowance start giving them money when they are older and around 16/17 (mature ages to let them experiment with money), the child will refrain from making an unacceptable purchase because they will have to answer to their parents. The only way that children will learn money management is by watching parents’ manage money (because they see when parents say NO even for themselves) AS WELL AS by parents communicating with the children by telling them (1). why they made the decision about the purchase (why/why not buy), and (2) by giving them examples of other people who couldn’t control their money and bought everything they wanted and are in trouble. The theory is based on the idea of the best possible way to convince kids not to do drugs. Telling kids Not to do drugs is not going to stop them from doing drugs (if someone was told not to press the red button but was not told why not, then they would be curious. If the curious person is a risk taker that person will press the red button). Giving your kids the reason drugs are bad, makes your argument stronger and makes them understand. But giving them many examples on top of the reasons and the right decision, makes your argument the strongest because they can see what you are talking about, as well as agree with you eye to eye as to what is foolish and what is not.

3. Parents who pay allowance now are not the parent, but the employer. The parent now has power over the child because of money rather than their relation to the child. This actually puts more power in the hands of the child rather than gaining control of the child. If the allowance isn’t paid, the work isn’t done and the parent gets disrespected. The child may literally say, “Next time I’m not going to work for you,” or call parents names, or start steeling. “In the beginning giving allowance to children will look flowery, but in the end, it turns out to be a time bomb ready to explode.

4. Giving allowance conditions a child to associate work with money and money with work. If they do work, they have to get paid; therefore they may look for more work and expect to get paid more. If it is not paid, they will never be willing to do more work than assigned. Children will learn to do only the work that they are getting paid for. If they are not getting paid, they will not do the work. That is harmful because when they are older and in the real world, the employees who take initiative succeed. Taking initiative means doing things outside of the job description. Only a person who was taught as a child that no matter what, “if the job has to get done, the job has to get done,” will advance in position. A person who was given an allowance as a child will never step outside the box if they are not getting paid to do so.

5. 1 dollar at age 5 is not 1 dollar at age 15. Psychological studies show that a person who is given a reward performs better than a person that isn’t given one. However, they also show that over a long period of time, if the reward is not increased, the performance will decrease. If the reward is given on a regular basis for a very long time, even if it is increased, the performance will also decrease because the person knows that they will be getting paid no matter what. If the reward is given based on performance, in the beginning, they will set goals to achieve high performance but even that will stop after some time if the performance expectations reach an unreachable point after being increased every time or the effort isn’t worth the reward. Performance will also deteriorate if the excitement to achieve has waned. Therefore, applying the psychological theories to the idea of giving allowance to kids, leads to the conclusion that by the time the children are adults, their strong desire to earn money has diminished drastically.

6. The future cannot be told. What if the family goes from being financially able to pay an allowance to being financially unable to pay or even simply having to reduce the allowance? Rewards have to be increased for a chance to maintain performance. If it is reduced or stopped all together, it will be harmful to the child’s eagerness to perform. Therefore it is highly necessary to teach children that no matter what the reward is, the job has to be done, rather than teaching them that the only reward worth working for is a monetary reward. The reward in any performance is the final outcome. For example, the reward for cleaning a messy bedroom is a clean room to sleep in, not $5.

7. Doctors didn’t become doctors by being thrown in a hospital as a child. Professionals go to school to learn and see what professionals do. Future surgeons are not taught first by being given a body to do surgery on. They are required to go through schooling and learn what surgeons do. Before they even get their hands on a body, they watch and see what a surgeon does. It is the same strategy with teaching kids how to manage money. They have to be taught first by listening to and observing parents and people around them, how to manage money. Then, when they are mature and can understand much of the world, they can put their hands on money to experiment with the knowledge of money management that they have been given.

We have ignored this insight for too long, with disastrous results. Congratulations, Dan for bringing education to life (and Life to education.)

I’ll have to watch it with him when he gets back from camp. Looking forward to it

By the way, your comment was held up in a spam queue for the past few days and almost deleted. I just happened to notice it beore hitting the delete button!

There are about 100 spam comments for every real one so “false positives” are really hard to catch. If you’ve commented in some other blogs recently, you might find they also weren’t posted (many blogs use the same public anti-spam service called Akismet).

If you find this is still happening, let me know- I can contact Akismet for you.

This is a brilliant idea. My teens seem to need cash without giving me notice. I don’t keep a cash reserve on me. Getting my girls their own debit cards could be a huge time saver for me. No more emergency runs to the ATM. Thank you once again. I appreciate the effect Active Allowance has had on our family.