Allowances for children are a tricky matter. Whether to tie allowances to chores or not is just one question to consider. I still don't think there's one right answer but that doesn't stop people from taking a stand. One of Gary North's articles today (in his members' section) has this headline:
“Do You Pay Your Children an Allowance? Stop! You Are Ruining Them.”
That's a strong opinion. (He has strong opinions on just about everything. He's also very rich, so I tend to believe him.) Without giving away everything in the article, he does reference this TED talk by entrepreneur Cameron Herold. It's a longish talk but worth listening to.
Mr. Herold states that he was raised to be an entrepreneur, as were his siblings. His father was an entrepreneur, and trained Mr. Herold to start and execute various small-scale, yet successful businesses. In doing so, he learned negotiation, spotting opportunity, salesmanship, thinking on his feet, managing employees, and many other skills that successful entrepreneurs have.
Time for the deep end: No allowance
His argument (and Dr. North's) are that allowances teach the opposite of entrepreneurship. It teaches kids to expect a paycheck. A set amount each week (whether for chores or not) or even a set amount “plus” for doing extra work, mimics the behavior of a salaried employee, not an entrepreneur. Far better, he says, to have kids look for things around the house to do and negotiate. This acts as a stepping stone for hustling outside the house, whether it's a lemonade stand, or selling at a craft show, or something even bigger. An allowance, they say, robs them of this opportunity.
They have company. Robert Kiyosaki, author of Rich Dad, Poor Dad, makes the distinction between salaried employee and businessperson loud and clear. At one point in the story, he had been working for 10 cents an hour (in the 1950s, but this was still a pittance) and then was working for nothing. This gave him the mental RAM to find other opportunities. Dr. North makes the point that adults who are salaried (like myself, for the most part) are at a disadvantage trying to teach entrepreneurship to their children, because I'm more like Poor Dad than Rich Dad.
Taking away the fixed payout works for commissioned salespeople as well. Carl Sewell, car salesman and author of Customers For Life, weans his salespeople off of a salary over the course of three months. By the beginning of the fourth month, they're completely on commission, and the best ones do very, very well — probably better than they would have if they had a salary to fall back on.
So, it's time to throw my daughter in the deep end?
Mr. Herold also makes the point of looking for entrepreneurial traits. Becoming an entrepreneur requires training, but certain people are predisposed to becoming entrepreneurs. From my own experience, it's hard to say how much of an effect my upbringing fashioned my becoming an employee, and how much of that outcome was based on my internal wiring.
If I knew nothing except entrepreneurship growing up, it's more likely that I'd be completely an entrepreneur now, and I'd have a much different view on training my daughter in the financial ways of the world than I do now. As it is, I'm leading her more toward “getting a job” rather than “becoming an entrepreneur” by my actions: I have a job myself, and I'm giving her an allowance. At the very least, though, if she wants to be able to do some of what she wants as a teenager, she'll need to be earning her own money to a large extent. Whether that's working part-time somewhere, or whether it's starting up a business, that remains to be demonstrated. It's as much of a mistake to hoist entrepreneurship on someone who would be a great employee than it is to discourage a budding entrepreneur by not opening the right doors for them.
I don't think she “gets entrepreneurship” just yet, but I hope she does. She'll be better for it in the long run. For now, talking to her about money and letting her spend, save, and give away some of it herself is needed.
(Thanks to Fiscal Fizzle for including this post in the Carnival of Personal Finance!)
YEs, throw her off the deep and and watch her swim!
The only part of this post I truly object to is the statement: “He’s also very rich, so I tend to believe him.” I really hope that is tongue in cheek!
Anyway, I think a hybrid approach is good one – that way, you’re daughter will get a taste for both worlds and be better equipped to make her own decision later on. She may even choose to do both in her career.
@Bill: Good catch. Probably a couple of qualifiers are needed in there. First, his integrity (as far as I can tell online, anyway) is bulletproof, and he’s also very wise. He’s made his money working hard and smart, so I tend to believe him when he talks about making money.
When I have kids, you better believe that I will be teaching them about entrepreneurship early on in life. I want my kids to be thinkers.
I tend to agree with Bill at FamZoo: no extremes. Remember, there are at least 16 different personality types, and only a few of them lend themselves to entrepreneurship. With three ways to make money – having a job, running a business, and owning investments – it’s best to expose your kids to all three. You never know how they’ll wind up.