Should kids be rewarded with money? -

Should kids be rewarded with money? This is a million dollar question. The Globe and Mail brought the familiar topic up in November. As I read the article I couldn’t help thinking about Pavlov and his famous experiments on conditioning behaviour. Money has been widely accepted as a positive reward, but how money influences human behaviour is a little more complex than ringing a bell to get a dog to salivate or getting kids to act in a certain way by waving a dollar bill in front of their noses.

The Globe and Mail article gives a few examples how money can be a motivator like paying kids $20 for every A they received on their report cards. They admit the experts and parents are split on whether paying for performance is a good idea.

It was at this point when I couldn’t take it any longer. What experts are they talking about? Psychologists? Social Workers? Bankers? Credit Counsellors? Who was the study group? Where did they live? What were their income levels? Occupation?  Age? How many children were in the families? Were they employed or unemployed?…and so on.

Serious insights about money and families should follow basic research principles.

The next problem: Who are the parents? Which parents agreed and which ones were split over giving children money for performance?

It doesn’t take too much scrutiny to see how weak the assertions disguised as information are. What is more troublesome is how common this approach is with money and personal finance. Far too many people are told all kinds of ambiguous and unverified things when the topic is money is the subject, without question. Even high end investors and the rich and famous were swindled by unscrupulous predators as the 2007-08 credit crunch revealed.

This brings me back to Pavlov as this is part of our conditioning in the instant gratification culture. We nod our heads the moment someone rings the financial bell or tells us to salivate when it comes to money.

The details do matter. Income levels are critical to understanding personal finance. Just as assets and debt levels. Abstract generalizations, national averages and per capita debt ratios only have limited usage. Truth is much more personal and defined by all of the specific details found in family households.

Should kids be given an allowance or rewarded with money is a very important part of family budgeting. One of the unquestioned assumptions made by both identified and unidentified experts is whether or not everybody, every family, can afford to do this. I would like to see much better and verifiable research on this question.

We don’t always have free choice about how we spend our money. Circumstances dictate where we live, what kind of car we drive, and a culture that thrives in excess encourages people to go shopping and use their credit cards. This is a conditioned reflex. Problems only arrive at the doorstep if something disrupts income like a health problem or unemployment or if all the credit resources are exhausted.

The practice of subsidizing the family income with credit when it comes to budgeting and paying the real and necessary family expenses has evolved to become unquestioned and commonplace. It happens every year with car insurance, house insurance, vacations, back to school expenses and Christmas. How else can you explain perpetual increases in household debt for individuals and families over the last 40 years, or shall we call it the arrival of the buy-now-pay-later world.

Family budgeting has struggled to avoid extinction as well over this same time frame. Why? You don’t really need one in a credit society. If you run out of money (cash) then you just use your multiple lines of credit or handful of credit cards. At least many people are able to avoid the menial task of listing monthly and annual expenses and counting pennies – for a while. The great irony with the credit society is how people are only forced on a budget if they should run out of credit. At that point they either have to pay the creditors or their bankruptcy trustee.

So, should you give your children an allowance or monetary rewards? I think it’s a good idea to connect children to the realities of money – not the false promises of credit. People should ensure first and foremost, that they have a realistic and functioning budget.  Children and teenagers could benefit greatly if they better understood the costs of living and that money doesn’t grow on trees. Work with the kids. Take them grocery shopping. Let them learn about comparative shopping and getting the best value for the dollar. Determine what you can afford to give them and what their expectations might be for an allowance.

The matter of paying children to perform is a bit murkier. It ignores all of the costs that parents face to raise children, which are around $200,000 per child up to the age of 19 according to recent published studies in Canada. In many respects giving money for a child’s performance cheapens the achievements. It monetizes virtues like the work ethic and the pursuit of excellence rather than focusing on person’s character.  Isn’t self esteem and confidence better rewards?

In summary, yes, let’s teach children about money. The parents can begin this lifelong relationship with money very early on. Allowances allow kids to connect a few of the dots, one of them is that you must earn money. Once they get some (accumulate) they can learn about saving and spending. This may prove to be the best reward of all.

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