Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Tuesday, April 19, 2011

Will Money Motivate Your Children?

It’s not uncommon for most everyone to try to use money to motivate their children in one way or another. How much allowance to give and guidelines for its use, are of interest to most parents.

Two recent articles in the Journal of Financial Planning shed some light on using your money as a motivator. The articles, titled “Not Your Typical Incentive Trust: The Rote and FST, Part I & II”, by Eileen Gallo, Ph.D., Jon Gallo, Ph.D., and James Grubman, Ph.D. (April 2011), discuss the use of various trusts in estate planning to try to motivate beneficiary behavior.

The first article points out that money is often a disincentive rather than an incentive. The authors explain that a 1908 study produced what is known as the Yates-Dodson Law. According to the authors, the Yates-Dodson Law says that we are motivated by activities that are interesting and challenging and turned off by activities that we view as work. When we attach money to activities, we tend to view those activities as work and are therefore dis-incentivized to do them.

Based on the above study, therefore, it seems that we need to be careful about our expectations to achieve certain behaviors as a result of giving our children an allowance. Allowances may help motivate our children to clean their rooms, do the dishes or take out the garbage (i.e., work). Giving money for improving your children’s grades in school may be marginally successful, since achieving good grades may be more dependent on your children’s interest in school and the degree they feel challenged. If they view school as merely “work” for which they might receive some compensation, they are less likely to be motivated to the extent required to improve their grades.

We believe with some thought and creativity, allowances can be used to motivate activities that are not work-related. We have written previously of an approach to giving allowances that requires a child’s allowance to be used in three specific ways. One part of the allowance is designated for current, immediate gratification (fast food, a movie, toys, etc.).

A second part is designated to be used for longer-term goals. Longer term goals would focus of larger expenses that require good savings habits (purchase of an IPOD or expensive sports equipment, for example). Children will hopefully learn the benefit of saving for important goals and the greater satisfaction that can come from waiting for something of greater importance.

The remaining part of the allowance would be set aside for philanthropic purposes, to teach the importance of helping others and help your children experience the satisfaction of helping those in need.

If presented properly, children may experience a heightened sense of interest and the challenge involved with saving for important purchases or with helping others in need.

The bottom line – money is often not the answer to achieving the behavior you desire in your children. You often have to work hard to find ways to make things interesting and challenging in order to achieve desired results.


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