By Jim Donovan: Did you get an allowance when you were a kid? I did, $1 a week and boy things have changed. (Another sign that I am getting old) These days the average allowance provides a child enough money in a year to afford an Apple iPad and three Kindles and still have money leftover – money they’re most likely to spend. Indeed, only 1 percent of parents say their kids save any of their allowance.
Those are the findings of a national phone survey conducted for the American Institute of CPAs by Harris Interactive that explored what parents pay their children.
The survey found that 61 percent of parents pay an allowance to their kids, with the majority, or 54 percent, beginning by the time their child was 8. While the amount varies by age, the average allowance totals $65 a month, or $780 a year. Nearly half of parents with kids in school, or 48 percent, also pay their kids for good grades. The average rate for an A: $16.60. (When I mentioned payment for good grades to my producer Jennifer, she laughed and said if that is the case, maybe parents should start charging rent -by the way, her daughters are very smart, just like their mother!)
“These findings make clear that it can pay to be a kid,” said Jordan Amin, CPA, chair of the AICPA’s National CPA Financial Literacy Commission. “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.”
The vast majority of parents do require their children to earn their allowance. Eighty-nine percent expect their children to work at least one hour a week and, on average, children put in 6.2 hours per week on chores. But money is not a top topic for conversation. According to the survey, parents are more likely to have talked with their kids about the importance of good manners, 95 percent, the benefit of good eating habits, 87 percent, the importance of good grades, 87 percent, the dangers of drugs and alcohol, 84 percent, and the risks of smoking, 82 percent, than about managing money wisely, 81 percent.
Children have broad flexibility with the money they receive. They most often use their allowances to buy toys or to hang out with friends, according to the survey, as parents handle other purchases. In fact, parents who pay an allowance are significantly more likely to also pay for discretionary items such as sport- and hobby-related expenses, mobile phone service, movie rentals and digital downloads. Nearly half of parents, or 47 percent, said they expect to financially support their child until age 22 or older.
The National CPA Financial Literacy Commission offers these tips for parents:
Set parameters. If you decide to pay an allowance, make sure your children clearly understand why they are getting it, how to earn it and how to lose it. Some families, for example, condition allowance on the completion of specified chores and make deductions for those that aren’t finished. Others set a base allowance and provide bonus opportunities for extra chores that are completed. No matter your approach, make sure that you align payment with action so your kids understand that money must be earned.
Set goals. An allowance is a great gateway to budgeting. Rather than giving your children money to spend at will, consider an allocation process that rewards a focus on short- and long-term thinking. You could, for instance, allow your child to set aside 25 percent for short-term goals like a new game or toy and 25 percent for immediate or impulse decisions, like outings with friends. You require that the remaining 50 percent be set aside for long-term goals like college and match those dollars to reinforce the reward of saving.
Talk often. The more you engage your children in financial discussions, the more likely they are to learn lessons and make good money management part of their daily life as they get older. During dinner, talk about saving for a big purchase, such as a family vacation, and how it might impact the budget—where will you cut back to save? Ask them to weigh in and help you think through the options so they learn how to do the analysis.
For more information about the AICPA visit: http://www.aicpa.org