An Allowance Is No Substitute for Financial Literacy Training
A recent study provides some good tips on how to distribute your child's allowance
Thursday, September 20, 2012
When you're a kid, it's nice to get an allowance. Even though I didn't do much to get mine when I was a child, receiving a few bucks from my folks always gave me a slight feeling of accomplishment back then.
In a recent survey released by the American Institute of CPAs (AICPA) it was found that 61 percent of parents give their kids a steady allowance and 54 percent said they started doling out money to their children once the child reached 8 years old.
“These findings make clear that it can pay to be a kid,” said Jordin Amin who is chairman of AICPA's Financial Literacy Commission in a statement.
“Parents need to make sure they're also passing along financial sense with those dollars and cents. Earning, budgeting and saving are all important lessons that can be tied to allowances, lessons that can help put children on solid financial footing," Amin said.
$65 a month
The survey also revealed that kids were paid an average of $65 a month, with 89 percent of parents requiring their children to do some type of job for at least an hour a week.
In addition, 48 percent of children were paid for good grades, and the average going rate for an "A" is $16.60, according to the report.
Although such a high percentage of parents shell out a consistent amount of allowance on a regular basis, they ironically don't spend much time talking to their kids about how to manage those dollars.
The most popular topics parents spoke to their children about instead of money management were good manners (95 percent), proper eating ways and good grades (87 percent), warnings against drugs and alcohol (84 percent) and the dangers of cigarette smoking (82 percent).
It's safe to assume that many parents assume kids will learn the lessons of personal finance at school, but in a separate survey conducted by the National Jumpstart Coalition for Personal Financial Literacy, over half of children (58.3 percent) learned money management tips from home, instead of the classroom.
The Jumpstart survey also showed that only 19.5 percent of children learned money management from home and 17.6 learned it through financial trial and error.
Importance of saving
The AICPA says parents should still monitor their kids’ money after allowance is given, and children should learn the importance of saving a portion of their cash for long term purchasing goals, like buying a new skateboard, or saving up some spending money for a school trip.
According to AICPA this will teach children to balance their funds, which will hopefully be carried over in to their adult life.
The accountants organization also says parents shouldn't be hiding all of the household’s financial decisions from their children, as discussing some things with them can give them a far better perspective on how to budget funds.
So if you're saving money for a new car for example, explaining to your kids what it will take to budget in order to pay for it, will help them tremendously in their future.
Another suggestion is to put limits on the allowance you give, so children can understand it’s not a legal right of theirs to receive it. Parents should let their kids know that allowance can be taken away or raised if certain accomplishments are reached, like doing extra chores or getting good grades in school, says the AICPA.
The report by the CPA group also shows that parents who give their kids a steady allowance usually don't pay for other expenses like cell-phone bills, expenses to join sports teams, or other costs many adolescents run into.
It also revealed that 47 percent of parents expect to financially support their children until they reach 22 years of age.
Other financial experts say it's of great benefit to your child if you open a bank account for them, as it allows children the opportunity to see their allowance grow with each savings deposit, which will provide a huge incentive for them to keep adding to their balance.
For younger kids a piggy bank or a home-safe of some kind that shows the tally amount is also good for kids to have, say experts.
“As parents we feel a strong commitment to our children and ensuring they have all that they need to succeed,” said Amin. “One of the best gifts we can give them is a solid education on managing money," he says.