I recently had lunch with one of my favorite CEOs. I don't recall how it came about, but we started talking about his 14 year old daughter and her allowance of a measly $5.00 a week. I told him that was way too low and explained in part why I thought an allowance should be large enough to actually give the teen some freedom to make her own choices. (I will share my e-mail explanation to him with you in a minute.)
The reason I am writing about it is because parents are managers - and in this case - the parent was a micro-manager by not allowing his teen some freedom of how she spent her money. (My CEO friend blamed it on his wife - which is another example of him abrogating responsibility.)
So here we have a couple - co-CEOs if you will - one abrogating responsibility and the other micro-managing. Poor teen - she doesn't learn how to make her own decisions, and she has no economic freedom.
Here's what I sent him in an e-mail after our lunch:
What is the purpose of an allowance for kids?
I believe an allowance is a very important tool for teaching children a variety of things.
Making choices: Rather than believing one can get whatever he wants if he asks in the right way, having a fixed income (an allowance) that is dedicated to allowing the child to buy whatever he or she wants within clear limits teaches that if you want one thing, it means you probably can't have something else. Consequently, the amount of the allowance must be carefully calculated - based on the current cost of goods and services, the child's age, and how much freedom you wish to give your child.
When deciding, think about the things it is OK for your child, based on his or her age, to purchase. Ice-cream from the truck? Hot dog and coke at the mall? A movie once a week? Birthday, anniversary and special day gifts for parents and siblings?
Do you also want your child to learn the importance of savings? If so, the allowance has to be large enough to accommodate the ability to spend as well as the necessity to save.
Freedom of choice: Independence or dependency? What are you teaching?
Which do you prefer?
If a child has to ask the parent each and every time he or she wants something, the child is not making that decision, the parents are.
Let me tell you a true story. When my nieces were small (they are now very successful business women) they and my sister (their mother) came out to visit. We were planning our visit to Disneyland when I asked my sister how much she was planning to give each child for spending money. She said, "nothing, all they have to do is ask me." I disagreed and explained my thinking and sweetened the pot saying I'd give them the exact same amount as she would. So, each girl received $20.00 to spend exactly as she wished. Of course, we the adults paid for entry, tickets and food.
Amelia, my eldest niece happily spent her money during the course of the day, on soda, snacks, arcade games, etc. Gabrielle, the younger, saw a stuffed animal in the store as we were just starting our adventure. It cost $20.00. I suggested she have the saleswoman put it aside and if she still had her money at the end of the day, we'd go back and she could purchase it. She held on to her money all day and at the end, happily purchased her stuffed animal (I secretly paid the tax.)
So, different choices - neither of which was better or worse than the other. The girls decided, not the adults.
The value of money: Only by having money and having to budget and make decisions do you ever learn the value of money - and from it the value of earning money. If parents make all money decisions, it is as though money grows on trees - or gets printed in much the same way many people believe the government prints money whenever it needs it.
If the money is in MY pocket, I have to decide whether an item is worth its price - to me. If I am earning money (which should be in addition to an allowance) I can equate the price with the amount of time it takes me to earn that sum of money.
I can remember the first time I bought an outfit that cost me more than a week's pay. I never regretted spending that money - it was an outfit I wore to opening night of the Opera (The Met) one year - and wore it many times after that with oodles of compliments. It was worth it - to me.
So, if I am a teenager and my allowance is large enough for me to occasionally decide to buy a cute top at the mall, I will learn the value of money.