The effects of childhood allowances on adult financial capabilities

Abstract

This paper studies the connections between individuals’ childhood allowances and financial education and their subsequent financial capabilities in adulthood. Earning an allowance as a child can instill a work ethic in the formative years and help children progress towards financial independence. The lessons learned through earning an allowance can translate to a better grasp of financial concepts in adulthood (Danes, 2005). Conversely, an allowance that is given freely without any means of earning it can be detrimental to a child by imparting a sense of entitlement. Having this mindset in adulthood can lead to a faulty understanding of financial concepts (Danes, 2013). Additionally, the lessons parents or guardians teach in combination with giving an allowance play a crucial role in developing a financially responsible adult. For example, when parents or guardians require children to save a portion of their allowance, they simulate an environment like the one they will encounter when they become working adults (Danes, 2005). This study anonymously surveys participants about their upbringing (whether or not they received an allowance, the nature of the allowance, and how well their parents educated them on finances) and current financial situations (employment, debt, income, and savings plans). The information gained from the survey will provide real-world examples of these concepts. The researcher hypothesizes the following: First, individuals who earned an allowance will be more financially capable than those who received an unearned allowance. Second, individuals who received an unearned allowance will be less financially capable than those who did not receive an allowance at all. It is unrealistic to expect adults to understand how to manage money if they have never done so before. This study seeks to demonstrate that the foundations for financially capable adults are built during childhood.