Should You Cut Your Children's Allowance in a Recession?

I suppose a better way to frame that question is: Should you cut your children’s allowance in a recession even if your income may not have been affected?

I’m looking for opinions and comments on this because I don’t know the right answer, but I’m inclined to think that depending on the age of your spawn it might be a fantastic idea. I have no children of my own which is why I’m looking for your input.

This idea was suggested to me a few weeks ago and I’ve been thinking about it ever since. By NOT cutting a child’s allowance (for any reason), perhaps this perpetuates the “invincibility” mentality of younger adults. I have a feeling that some young adults feel that there might always be someone there to bail them out because parents can be too accomodating… or they’ve just never experienced financial hardship.

So if money has never been a concern, it’s easy to see how one can develop bad habits with respect to managing it. With so much attention on the economy and stock markets I imagine it would be as prime a time as any to cut a child’s allowance as you could partly justify it with all the attention in the media! :)

So my question to all the parents out there (and anyone else really) – what do you think? Do you think this could be used as an effective way to teach children more about managing money?

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 18 comments
  • Mark Wolfinger

    I’ve never been in this situation, but you can say that jobs are scarce and to simulate the real world, your child’s employer has decided to scale back everyone’s pay instead of laying off any workers. Try for a 10% cut.

  • Big Cajun Man

    Simply cutting down on discretionary spending (i.e. going out to movies and going out to dinner) and explaining to your kids why this is happening, is enough. Teaching your kid the “cold harsh facts” about life isn’t really needed here.

    If you are your kids ATM machine however and give out money “willy nilly” then YES cut that kind of money output and explain why.

  • Jordan

    I think this is a fantastic idea. I think kids today (and many adults) don’t understand the value of money. This is a very appropriate way to show them some of it’s meaning. Money isn’t constant, it fluctuates and when you lose it you often have an emotional reaction that is worth understanding.

    I wish my kids were older and got an allowance so I could cut it! (evil, I know) We’re still working on the basic concept of how you trade money to get other things.

  • fred

    I think that parents should be focusing on teaching kids money management rather than “what happens in a recession”. My guess is, the average 5 year old would just be confused. We give our kids a dollar per year they are old for their allowance. They do not get it if they do not do their chores. They then have to put 50% in a “savings” piggy bank and 50% in a “spending” jar. They can spend that on whatever they like and when they decide what they want, we tell them how many allowances they have to earn to get that. We also encourage them to spend some of the money to buy a book for the Starbucks annual book drive at Christmas. Telling them that they are getting a dollar less would just confuse the issue. After all, they are not getting fired…they still have a job…same one as before and they are not in management (even though it sometimes feel like I work for them). I think teaching kids to save a chunk of their allowance and to only spend once they have enough in their other jar will help to instill the life skills needed to survive a downturn when they are parents themselves.

  • Preet

    Thanks for your comments guys. I certainly see that the intended effect could be lost on younger kids, but I know that many people give an allowance to teenagers – I see more utility (and potential for backlash!) with older kids for sure.

  • Hollie

    I have been teaching my daughter money management for years, she gets her budgeted amount even in the recession. Know why? Because as she becomes older (she is a tween) I want her to know the value of it and how far it goes. She is responsible for her own cell bill( she buys one $25 card every 2 months, care of her pet guinea pig which she spends about $15 a month on (mommy covers the vet), savings $10 a month, giving is up to her but she has been averaging about $10 a month there too to charities she chooses, and the rest is free spending which amounts to about $20 a month. She is very frugal with this. I am the Mom Bank. I have an excel spread sheet just for her. We track her spending, savings, and RESP here. She knows her balances and she is 11! It is more important at this stage in the game to give them skills, not talk recession. Although we did have a talk about what we could give up as a family to save more, I think we need to talk money, money, money to our children.

  • moneygardener

    I see where you are going with this and I think it is a unique idea. In practice, I’ll reserve judgement until I am in the situation.

  • Preet

    @Hollie – Now if only more adults could do that! :)

  • Preet

    From an emailed reply:

    I vote for a reduction in allowance when times are tough even if the parents are enjoying no change in income. Why? The parents must be prepared for any downturn that may happen to them.

    The move also underlines the fact that if we raise kids who have a sense of entitlement (like the autoworkers) we simply perpetuate the mindset that has put our economy in this predicament in the first place.

    I raised four kids and not one of them EXPECTED to have a car at age 16 or lots of computers, i-pods or travel around the world. They all learned the value of reward as a result of hard work or investment of time, money or research. They did not grow up expecting GM to give them $70 in wages plus benefits regardless of how few cars are being sold. And they did not party hearty thinking that the government (other taxpayers) would bail them out or provide them with a comfortable living despite the fact that they squandered money.

  • Preet

    Also from an email:

    It can make sense but it would be better if the adults cut back their spending as well, cigarettes, booze, going out for lunch cutting back on golf etc. That would reinforce the message. Also what was ever cut back form allowance, put it aside for child. That way there would be some positive reinforcement for saving.

  • Hollie

    Preet in a further response to this article I wrote a post about what I am using with my daughter.

  • Lee

    I think this is a great question, and a great idea. It’s a small little thing in the grand scheme of life, but it could help teach your children a valuable lesson if they’re old enough to grasp it:

    When times are good, save for the bad… because they do come and often without warning.

    Hi :) First visit, first comment.

  • Kids and Money

    Our children must EARN their allowance, no freebies!! As a single parent that was *less* than good with money throughout my youth, teaching children about money is CRUCIAL, in my mind. I’m not going to blame parents, schools, etc, but quite simply, I clearly “didn’t get it”, and I am still paying for those mistakes a decade later! And quite frankly, I hate the position I got myself in, everytime I pay off my past debts… I could have used my time/money sooooo much better.

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