The great allowance debate roars on, and may have moved to a whole new level with a personal-finance scholar’s recent assertion that a “regular, unconditional allowance may be akin to cruelty to children.”
As a teaching tool, allowance isn’t just ineffective — it’s detrimental. So says Lewis Mandell, professor emeritus of finance and managerial economics at SUNY Buffalo.
Mandell is a pioneer in the field of financial education, and for a couple of years he has been questioning the educational benefits of kids receiving a regular allowance. In a discussion this week on public radio he upped the ante, saying that paying an unconditional allowance is one of the worst things a parent can do for the personal-finance development of their kids.
Mandell’s extreme view is at odds with most of the thinking in financial-education circles. The main point of contention has long been whether or not to tie allowance to chores — not whether to pay an allowance at all.
But Mandell says in most cases allowance, as a tool for learning, just doesn’t work. He notes findings from a series of financial-literacy assessments by the Jump$tart Coalition for Personal Financial Literacy. These surveys show that high school students who receive a regular allowance test the poorest and exhibit the weakest behavior in personal money management. They are also more likely to be “slackers” as adults. Hence the cruelty assertion.
It’s important to note, however, that Mandell is concerned with broad national trends. He believes parents who pay an allowance and understand personal financial issues themselves and take the time to talk to their kids about budgeting and credit can reasonably expect good results. So too can the 25% or so of kids who are motivated learners and will go on to graduate from college. Says Mandell: “Those kids get it almost automatically.”
The problem is the other 75%, where there is less emphasis on higher education, and working parents have little time for the kind of discussions about money that should accompany an allowance. In most households, Mandell says, the top reason for giving kids a weekly allowance is to minimize the time they must take dealing with kids and money issues. On top of that, the parents generally aren’t qualified. “Most parents are themselves financially illiterate and pass down an oral tradition of misinformation,” he adds.
Most experts agree that informed discussion is a key part of any allowance system meant to teach kids about money. But in the absence of such discussion, is paying allowance really cruel?
On the same program, Bill Dwight, CEO of the family-finance website FamZoo, said he was “not moved by research” that Mandell cited, adding that it is “inconceivable” that the kind of practice kids get deciding how to spend their own money won’t make them better at it. I’m with Dwight.
As a nation, we need more research as to how to reach that 75%. Hats off to Mandell for raising an important issue. But as individuals we can help our kids get it, financially speaking, right away. The key: paying an allowance needs to be seen as a way to start and sustain the conversation — not a way to avoid it.