When it comes to managing money, children get their first lessons at home. According to a new AICPA poll, 68% of American parents give their children an allowance. Most Americans (81%) say that allowances teach children financial responsibility.
And kids aren’t just dropping a few quarters in their piggy banks each week. According to the poll, parents give their children an average of $67.80 each month in pocket money—$814 a year.
The findings are part of a phone survey of 1,005 U.S. adults conducted in March by Harris Poll on behalf of the AICPA for Financial Capability Month. Compared with a similar survey in 2012, children have seen a 16% increase in their hourly rate when factoring in the hours spent on chores; they’re averaging $4.43 per hour today compared with $3.82 per hour in 2012.
Allowances typically aren’t just handouts. Children are spending about six hours a week doing chores to earn the cash, the poll found. This is tradition for many families. Among the 57% of adults who said they also got pocket money when they were young, nearly all (90%) had to do some chores to get paid.
Allowances can be an excellent teaching tool, said Gregory Anton, CPA, CGMA, chairman of the AICPA’s National CPA Financial Literacy Commission. “Providing children with a regular allowance gives parents a perfect opportunity to have a discussion about the basics of saving, spending, and budgeting,” he said in a news release.
Yet, having these discussions can be uncomfortable. Many even consider it rude to discuss money, said David Almonte, CPA, CGMA, a member of the AICPA’s National CPA Financial Literacy Commission and an audit senior at Grant Thornton LLP. But it’s wise to introduce the topic early, he said.
“At some point, your child is going to start asking you questions about money, and how you respond can not only have a significant impact on their understanding, but also play a vital role in their future,” Almonte said.
So, what’s the right amount for each child?
“Give your kids just enough so they can get some of the things they want, but not so much money that they don’t have to make difficult decisions between their needs and their wants,” Almonte said. “It’s less about the dollar amount the child is receiving, and more about what the child is doing with the money once it’s in their hands.”
The AICPA’s National CPA Financial Literacy Commission suggests a few tips for parents when offering an allowance:
- Teach your children the principles of saving and budgeting for the things they want. Help them understand the math. If a child receives $10 a week, but wants a $40 game, remind him or her that the game equals four weeks of allowance. Or, in terms of chores, this could mean doing eight loads of laundry or cleaning the dinner table for 20 nights.
- Ask your children about their goals. If your child wants a new bike by summer, show him or her how to calculate the amount that needs to be saved each week to reach that goal. Then, if the child is tempted to splurge on a spontaneous item, like candy at the movies, ask whether it fits into his or her budget.
- Have your children open savings accounts. Teach them how they could benefit from interest.
Suggest that your children set aside 10% of their allowance each week for savings, and match that amount like an employer would match an employee’s contributions to a 401(k) account.
Almonte’s parents had another smart way of teaching their kids about money: They offered him and his brothers a dollar-for-dollar match on whatever allowance the children had saved at the end of each year. The lesson stuck.
“We usually spent all of the money and saved nothing,” Almonte said. But one year, one of his brothers decided to save. After seeing the hefty check his brother received at the end of the year, Almonte immediately got jealous.
“Right then, I realized I needed to focus on saving money just as much as I focused on spending it,” he said.
For more tips on talking to kids about money, visit the AICPA’s 360 Degrees of Financial Literacy website.
—Samiha Khanna (email@example.com) is a freelance writer based in Durham, N.C.