Why Allowances Are Not Enough to Teach Children Financial Literacy

Parents reading book with their children

Why Allowances Are Not Enough to Teach Children Financial Literacy

Teaching children financial literacy is an essential life skill that can prepare them for a successful future. As mentioned in other posts, allowances are excellent tools to introduce our children to money management. However, while allowances can effectively teach children about money, it’s important to remember that they are not enough on their own. In this blog post, we’ll explore why it’s essential to discuss financial topics with our children.

Why Allowances are Not Enough


While an allowance can be a great start to teaching children about money management, it does not thoroughly teach children about the complexities of financial literacy. An allowance alone only provides children with money to manage, but it doesn’t teach them how to manage it, what budgets are for, or how or why we need to save and invest. 

While an allowance can provide your child with opportunities to practice many money management skills and habits, it can not teach what those habits are, why they are essential, or how to maximize their benefits.

The Importance of Discussions


Money discussions can introduce children to most financial literacy concepts. Parents and guardians can help children learn how money can be used to achieve short-term and long-term goals. They can also help children understand the importance of saving, investing, and spending wisely. 

Discussions about money can also teach children about the consequences of financial decisions. Allowances allow children to experiment with financial decisions, but children may not understand the consequences of their actions without guidance. Discussions about money can help children understand the effects of their financial decisions on their future.

Living Our Values Everyday

Teaching Financial Values


Discussions about money can help children understand their families’ financial values and priorities. Financial values are an important legacy to pass down to your kids. For example, how you give back to your community or the value you place on education can all be conveyed with money talks. Similarly, parents can use conversations to teach their children the importance of paying bills on time, creating a budget, and saving for the future.



While allowances are a good start, discussions about money and financial topics are essential to thoroughly teaching children financial literacy. Parents should take the time to have regular discussions with their children about money and lead by example by demonstrating good financial habits themselves. By doing so, parents can help their children build a strong foundation for a successful financial future.

How Consistent Allowance Giving Helps Children Develop Financially Savvy Habits

family giving allowance

How Consistent Allowance Giving Helps Children Develop Financially Savvy Habits

Giving an allowance to children is a great way to teach them about money management and responsibility. However, it is essential to be consistent when giving an allowance to make the most of this learning opportunity. In this blog post, we’ll explore why consistency is vital when giving an allowance to children.



When children receive a set amount of money each week, they can learn to plan and ensure they have enough money for the things they want and need. However, if the amount of money they receive is inconsistent, it can be difficult for them to budget and plan accordingly. They may start having that “money burning a hole in your pocket” feeling when they get access to money because it rarely happens. This can lead to more impulse buying. Oddly enough, the alternative is also possible. Inconsistent allowances may make them feel the need to hoard their money, again because they are unsure when they may get more and want to have at least some money. Both of which can be challenging habits to live with as an adult.

Child putting coins

Delayed Gratification


Similarly to helping children budget, consistency in giving an allowance can also help children develop delayed gratification skills. When children receive a regular allowance, they can learn to save their money for something they really want instead of spending it on something that provides immediate gratification but has little long-term value. This ability to delay gratification is a critical life skill that can help children make better decisions about their money. Delayed gratification can also be positively applied to other areas, such as education, career planning, and building lasting and healthy relationships.

Parents can help children build a solid foundation for a successful and fulfilling future by teaching them the value of delayed gratification through consistent allowance giving.

Needs Vs. Wants


Lastly, when children know that they will receive a set amount of money each week, they can make better decisions about how to spend their money. This can help them develop a sense of responsibility and understanding of needs v.s. wants. For example, it can be hard to decide what is a need and a want when you always wonder if you will have more money. Everything starts to feel like a need when you don’t think anything is accessible. Consistent allowances help children develop a better understanding of their needs and allow them to prioritize spending. These skills are significant assets when it comes time to set financial goals

Child looking at coins


Providing children with an allowance is an effective way to teach them financial management and responsibility. But it can only be fully effective if parents or guardians remain consistent in their approach. Consistency helps children understand the value of money and how to use it wisely. By being consistent, parents can create a foundation for their children’s financial success and set them up for a bright and secure future.

Too Many Toys? Here’s How You Fix It

A reservation I know a lot of parents have about giving their child an allowance is, “Do we want more stuff coming into the house?” I feel you. Like you, I have stepped on more than enough pieces of lego, never to want to see those vile blocks again. But if we’re going to give our little ones the opportunities to manage their own money, then we also need to provide them with the opportunity to bring new things into the house.

But like with all responsibilities, some limits can be put into place. Here is how you are going to manage the new influx of stuff that is coming in – *a toy equilibrium.

Establish a Toy Equilibrium

Do this before starting the allowance, or after a big toy purge. Establish that your house is now at its maximum amount of toys, the number of toys in the home can go down, but it can not go up. If a new toy is going to be coming into the house, that means a toy of equal size, or parts, or whatever criteria you deem fit for your home, needs to be removed.

Too many toysA toy equilibrium is an excellent way for your child to start prioritizing their belongings too. If they are really in need of that new transformer, Elsa, or whatever the latest thing is, then they should be willing to get rid of that other thing that has been collecting dust.

I, unfortunately, have passed along the hoarding gene to my son. I am a collector. Like me, my son does not like to get rid of anything. All trash could be a crafting item, all toys are special to him, and to give something away is always a great offence to him.  I can relate to that, but at the same time, we have limited space, and he has started to come to terms with that. It is still a fight to get rid of stuff. However, post-shopping, I do have him find items that he no longer uses to add to our giveaway pile, and so far, it has worked well.

Creating a Healthy Relationship with Stuff

With great power comes great responsibility. The ability to buy stuff means your little one needs to be responsible enough not to hoard things.  Saying goodbye to toys creates a healthy relationship between your child and things.  The ownership relationship is a critical part of money management.

Is it hard for you to say goodbye to stuff too?  When you do a toy purge, make sure your little one sees you purging some of your stuff also.  Model the behaviour we want, right?  Have you tried a toy equilibrium in your home?  How did it go?


* I first read about a Toy Equilibrium in Ron Lieber’s book The Opposite of Spoiled: Raising Kids who are Grounded Generous, and Smart About Money

Avoid The Allowance For Chores Trap

Should I give an Allowance for chores?

Here is a question I received from a good friend:

My husband and I were discussing this the other day. If their allowance is not dependent upon the completion of chores, because their chores are an expectation, what do you do with their allowance when they refuse to do their chores? Paying them their allowance when they don’t do their chores would most certainly send the wrong message. Thoughts?? – Jenny Bee

I love your question! I understand why you would be worried about sending the wrong message. What does it mean if you give an allowance to a child who is not doing their chores? Even if you have not directly tied the allowance to completing chores, you may worry about the perception. But if you believe that their allowance is money management practice (i.e. saving, spending, and giving) and not a wage (i.e. earning), then there should be no mixed messages.

An Allowance Is For Practice.

If you have set the expectation that your child’s allowance is a chance for them to practice using money, you should treat it like the other activities your child practices. For example, if you wouldn’t keep your child from soccer practice or music lessons when they don’t do their chores, then don’t withhold an allowance from them either.

I completely understand and relate to the concern that if I give an allowance when I can’t see my son’s floor, I’m rewarding “bad” behaviour. But they are not related. If you haven’t started an allowance, you have already found ways to encourage/incentivize your children to do the work around the house without the threat of “not paying up,” so keep it up. On the other hand, if you have started an allowance and are worried about your child being responsible, you have other parts of your child’s life to help encourage positive behaviour and good ethics, such as school, sports, and other extracurricular activities.

Transition Allowances to Budgets

As your child matures and is more comfortable managing money, their allowance should be turned into a budget that they manage. For example, their lunch budget or clothing budget. As you can see, once this happens, withholding the allowance almost becomes impossible. I don’t think many of us would withhold our child’s lunch for not finishing chores, although we may want to 🙂

Our children will have lots of chances to practice earning a wage for work well done. I definitely encourage summer jobs, so they start to build up a good work ethic. But I don’t think we need to be their first bosses. They will feel the consequences of not doing their work from their employers.  And when they do, we can be there to empathize with and guide them. Also, a good work ethic doesn’t just come from compensation (Refer to Dan Pink’s Drive).

We all want our children to be responsible. And chores are a part of that. But don’t let the completion of chores, or lack thereof, stymie the other lessons we are teaching.

Thanks again, Jenn, for the question. Keep the questions coming.



Why Practice is the Key to Financial Success

Practice. It is what we tell our kids to do to get better at, well, anything.   It happened just last week when my son received a bottle of pennies from his “Papa.” My dad, I told him, I will show you how to roll these pennies, but just like with everything, you will need to practice to get the hang of it. The practice is the reason why I’ve started to give my kids an allowance.

This is my second attempt at giving an allowance to him. The first one I started about two years ago, and it didn’t go so well. He was still shaky with his adding skills. The coin denominations were confusing him, and I didn’t have the sticktoitiveness to keep with it regularly. So it fizzled and died. Neither he or I were dedicated enough.

When to Start?

Fast forward and my son is now even more interested in money than he was then. He has a solid handle on basic math and is comfortable with all the coins and bills that we use. The other difference is I am also more dedicated to this effort than I was when we first started.  I’m more dedicated because of the idea that my son will need practice.  He needs to practice saving, spending and handling money. We all do. And I’m in a position where I can have my son practice early.

When I sat my son down to tell him that he was going to start receiving an allowance, I asked him, “Why are you getting an allowance?”.  And he came up with a few cute answers, “because I love him,” yes, “because I want him to be happy” also yes. But he didn’t come up with practice. So I told him. “Money will be a big part of your life, for the rest of your life, and like everything you do, you need to practice to get good at it. Your allowance is a chance to practice using money”.

Note that I see his allowance as a practice in using money, by that I mean, spending, saving, and giving. I have not included the practice of earning money in his allowance.  This can be somewhat “controversial.” Do you tie allowance to chores around the house? I wrote more about this here. But in short, I think that is a bad idea.

Pay for Chores?

We do chores around the house because we are “Citizens of the House.” We all need to do our part (our children included) to keep a clean, cared for, safe environment to live. Not because we get paid to do so. The trap that an allowance for chores creates is if the child decides they are willing to forgo the pay, the chores still need to get done.  Then, you are forced to have your child do the work without compensation, or you have essential tasks around the house that go undone. And now your child has abdicated their position as a house employee with no real ramifications (you can bet they won’t give you two weeks’ notice to find new help either). Either way, the lesson of paid work is lost. 

But back to the concept of practice. I want my son to be able to get a feel for delayed gratification with his savings.  He needs to get comfortable telling a cashier that they gave him the wrong change.  I want him to experience the feeling of doing something good for someone else, just because it is the right thing to do when he gives his money to a charity or a person on the street. But I also want him to experience the feeling of a lost or stolen toy, a toy he saved or broke because he was careless.

Learning Lessons

I am not going to prevent him from being a little careless with a dollar that he decides to bring to school, only to lose it in a hole in his backpack. Just as I want him to practice the positive feelings that money can bring, I need him to experience the other emotions too. That is true practice.

Before I gave him his allowance, I took it very personally when I saw him mistreat a toy. I took it personally because I was usually the one who had shelled out the money to buy that toy. And it would be me who he would come to when it broke to request a new one. But now that feeling has decreased just a bit. While I know there will be some heartache if one of his toys that he has bought is stolen, I also know a lesson will be learned. It has already started to happen.

Making Money Connections

When my son first got his allowance, he was eager to go to the dollar store. Maximize wealth was his mindset. But after a few hours of play, the toys started to break down. He now sees the link between quality and cost. He has told me he has no interest in shopping in dollar stores anymore. Now he would instead save up to buy something that lasts, than waste his money on something poorly made. That is not a lesson I could have taught him.

Before his allowance, a trip to the dollar store, buying the same products with the same lifespan, never seemed to affect him. The toy car would break, and he would be unaffected by it. I would get frustrated and tell him about quality, but he didn’t care. But now he has made the link in his head, and I couldn’t be happier.

If you give your child an allowance, I urge you to see it as a practice lap. A chance to experience both the highs and the lows of managing money. Set some rules around what they can do, guide them, of course, but don’t prevent them from making mistakes. Avoid the pay for chores trap and let them learn the hard lessons now while they are young, and the effects are nominal. I can’t say for sure, but I believe the payoff will be worth it.