It seems to me that, if you want to teach children at an early age about the benefits of careful personal finance, and other fun concepts (like an intuitive understanding of compound interest), paying an allowance that's directly related to chores or work around the house is probably a bad idea.
Are there any formal studies on this, or standard answers that are accepted in the personal finance community?
I think that is the wrong approach. You certainly need to teach the value of work, but you cannot tie it to income levels as a hard and fast rule. If you do, how do you then explain athletes making millions per year and only 'working' half a year, at most. And, then comparing that person to a person working hard in a factory, 40-50 hours per week, 50 weeks per year, bringing home $50K per year?
I've always taught my kids to work hard and with integrity. And, most importantly, you better enjoy the work you do because no matter how much money you make, if you dread getting up in the morning to go to work, your money won't make you happy. I've never focused on the amount of money they should be making.
Completely linear? We don't do that.
Our daughter has a fixed allowance, and we expect a certain amount of help around the house as being part of the family. We don't make any explicit ties between the two, and we don't seem to have any problems.
We bought an eBay lot of Polly Pockets and divided them up into $5 bags. (This is a better deal that what we could get in the store new.) Her allowance isn't enough that she can "buy" one every week.
After sensing her frustration we gave her the opportunity to earn some more money by doing extra work. It happened to be cleaning up after our dogs in the back yard, a chore we had neglected for quite a while. She stuck with the job, and truly earned that money. (She'll be six in January.) What's more, it was a good deal for me. It needed to be done, and I didn't really want to do it. :)
So, for now this seems like a fair balance. It prevents her from getting the idea that she won't work unless she gets paid, but she also knows that working harder does have its rewards.
We still have time to teach her the idea of working smarter.
(This isn't a formal study. It's just my experience.)
I don't know if it counts as a formal answer, but Dale Carnegie has always preached that income is related to how well you treat and get along with other people. His observation is that the highest paid people are those with the best people skills, because the ability to manage other people has higher value than singular ability.
Conversely, people making minimum wage often work "harder" than people making more money.
The old saw about "work smart, not hard" is a bit trite. In many fields, efficiency is valued over "hard work".
As a parent I think you absolutely have to teach them that income is related to work because (for most people at least) it's a more fundamental principle than budgeting, investments, interest, etc. Once they've learned that the primary source of income is work, then you can start teaching them what to do with it, i.e. how to budget, economise, save, invest, etc.
Get a copy of Capitalism for Kids - finally back in print (after being out of print for years). It's a great introduction to being an entrepreneur, aimed at young people. Six years old might be a bit early, though - but definitely before the teenage years.
My family instilled in me early on that hard work was important, and the output of that work was its reward. My grandparents really made in impression with me about telling the truth and being fair (probably after I was busted for lying and cheating about something) -- I remember my grandfather talking about the solem trust associated with shaking hands over something.
I remember opening a savings account at school on bank day and being really excited about the interest accruing... but my folks never really allowed us to spend it on toys or other stuff. I didn't really think about money at all until I was probably about 10 or 11, when I started watching "Wall Street Week" on PBS with my dad on Friday night and bombarding him with dozens of questions. Then games like Sim City really got me going... my grandmother was always amazed that I was talking about bonding construction projects.
I think that before 10 or so, kids needn't concern themselves with money, but should understand responsibility, the rewards that come from working hard, and the consequences for not doing so.
