Kids are bringing in more money from their chores than ever. In fact, child allowances are rising faster than their parents' incomes. But is this a good thing? Parents would like to teach their kids about responsible spending habits from an early age. An allowance gives children a chance to practice handling their own money. There is nothing like real-world experience, but are children really mature enough to actually budget or save? Probably not.
Over the past three years, children's allowances have increased by 38 percent. It is a raise for the kids, who are still doing about one hour of chores per week. Parents have not been as fortunate. Adult wages increased just 10.5 percent over the same time period.
So why are parents forking over so much more money when their own paychecks do not reflect the same? Moms and dads today want to teach their children responsible financial skills.
Unfortunately, this plan is likely to fail. Despite the best intentions of the 92 percent of parents who believe it is very important for kids to learn how to manage their money, larger allowances probably will not make this happen.
To actually learn to effectively manage their money, children need to practice saving a portion of their income. They also need to practice budgeting and balancing their needs and wants.
Most kids just do not have the cognitive ability to save their money. Children tend to blow their allowance on coveted toys and games. As they grow, it doesn't get much better. Designer clothes and top electronics make their way onto their wishlists. When they can afford it, they will buy it.
Parents would do better to keep their children's allowances small. Forced saving or simulating household contributions like rent or bills doesn't teach kids much either. It is better to give them a small amount and let them do what they wish with it.
Regardless, our kids will most likely practice spending. So why not let them do that, and keep their income low.