An overwhelming 92% of American parents say it is very important that children understand how to effectively manage their money, according to a new poll conducted in August for the AICPA by The Harris Poll.
One way parents teach children about money is to give them an allowance. The survey found that children under age 25 and living at home receive an average of about $120 a month in allowance.
Eight of ten parents (80%) said their children were required to do at least some chores in exchange for their allowance. On average, children were expected to do about five hours of chores a week.
The items children were most likely to spend their allowances on included outings with friends (45%), digital devices or downloads (37%), and toys (33%).
As children determine how to use their money, parents can take the opportunity to teach them how to save, said Sean Stein Smith, CPA, CGMA, DBA, a member of the AICPA’s National CPA Financial Literacy Commission and assistant professor in the business and economics department at Lehman College in New York City.
“Establishing short-term goals that incentivize saving, such as partnering on a bigger ticket purchase (a new video game console or phone, for example) can help establish a habit of saving with purpose,” said Stein Smith. “Rewarding the savings habit is important, and establishing a connection between saving and obtaining something you want is an excellent way to do so.”
Eighty-eight percent of survey participants said they talked to their children about money. A total of 49% said they did so at least once a week, including 34% who had these conversations multiple times weekly.
Those results are promising, said Stein Smith.
“The most effective way I have seen to develop strong financial literacy habits is to have open and consistent conversations about [money],” he said.
The AICPA’s National CPA Financial Literacy Commission offers these additional tips for parents who give their children an allowance:
- Begin early. As soon as children start expressing an interest in purchases, start having conversations about goal setting and saving.
- Explain the point. Children should understand why they are receiving an allowance and how they can lose it.
- Make it appealing to budget and save. Consider incentives such as offering to match the money they save.
- Help them do the math. Work with them to calculate how much they need to save each week to get something they want.
- Keep the conversation open. Check on their progress in handling their money and spot ways to help them continue learning as they mature.
— Anita Dennis is a freelance writer based in New Jersey. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.