Lewis Mandell has gone renegade. An esteemed educator and early proponent of teaching kids about money in the classroom, Mandell has in recent years come to see financial education as largely futile — and now he’s even railing against allowance.
No kidding. Parents have been helping their kids learn how to budget and make spending choices through a weekly allowance for more than 100 years. In that time, the only controversy has been over whether to tie the kids’ allowance to chores or simply pay it as an entitlement. There are good arguments on both sides.
But Mandell is changing the discussion by asserting that allowance should not be paid, period. He seems to favor a system where parents simply pay ad hoc for the things they are willing to let their kids have. It’s all part of his evolving view on how to best raise kids to become adults who won’t struggle with credit-card debt and poor savings.
His thoughts are worth exploring. Mandell is professor emeritus of finance and managerial economics at SUNY Buffalo. He was a pioneer in the field of financial literacy and authored the nation’s first prominent financial-literacy scoring system for the Jump$tart Coalition for Personal Financial Literacy.
In recent years, Mandell has concluded that most kids are not equipped to learn about money in a way that will lead to wise decisions as adults. They may pass a test on compound interest and banking fees. But with little opportunity or need to put that knowledge to work right away the knowledge doesn’t stay with them. Trying to make a difference in the classroom is a waste of money, he says. He believes we are better off focusing on adults, providing simple choices and unbiased financial advice at the point of purchase.
That view upsets financial-literacy proponents campaigning for more, not less, resources for K-12 classroom work. But at least they can see his point. After all, there is little proof that financial education overcomes psychological barriers and other impediments to behavior change. This is a relatively new field and research is under way.
Mandell’s attack on allowance is another matter. It strikes some as heresy. Forcing children to budget and make spending choices can’t help but mold them into better money managers as adults, the argument goes. Mandell challenges this bedrock notion in a post on the financial website LearnVest, where he writes:
“After reviewing the literature, I have found that, when given incorrectly, allowance is a terrible idea, across all cultures and time periods. Studies have shown that instead of encouraging good financial habits, giving an allowance is statistically associated with diminished financial literacy, lower levels of motivation and an aversion to work.”
Gulp. Mandell reviewed a Jump$tart survey from 2000 and found that those who received no allowance had the highest financial-literacy scores — ahead of those who received an allowance tied to chores, followed by those who received an unconditional allowance. The results were close — and all of them were low. But the bottom line was that children who received an unconditional allowance knew less about saving, spending and credit.
This result seems to have surprised Mandell, who went looking for answers and concluded that in today’s busy world parents too often simply pay their kids an allowance with no discussion of what it is for or how to manage the funds. He writes:
“Allowance systems are effective only when they afford the possibility for discussions about finances within the family, such as why and how families make the financial decisions they do. And even then, the conversations could be effective on their own even without giving over the money. Unfortunately, very few parents today have the time, patience, expertise and willingness to have the correct conversations with kids. So, allowance continues to be mishandled. Given the choice between a mishandled allowance and no allowance, I’d choose no allowance every time.”
There’s a nugget in there for those who believe in allowance as a tool. It’s not that allowance is bad or can’t work, just that the payouts need to be reinforced with discussion. That means describing exactly what the money is for; it means allowing your teens to stay home and stew on Saturday night when they’ve already blown their cash for the week. No bailouts or the lesson is lost.