October 7, 2019
Add another factor into the high cost of raising children in the United States—the formerly humble (and now very generous) allowance.
About 66% of parents give their offspring a weekly stipend, based on findings of a telephone survey of 1,002 U.S. adults conducted by The Harris Poll on behalf of the American Institute of Certified Public Accounts (AICPA).
Indeed, while most parents require their children “to earn their allowances” by doing chores around the house, the number of hours of “elbow grease” expected per week have not gone up significantly since 2016 (from 5.1 to 5.3 hours) , but the hourly pay rate has seen a dramatic 38% increase—rising from an average of $4.43 in 2016 to $6.11 in 2019
How are children using their weekly windfall? Three-quarters of Americans (75%) say the most important purpose of providing an allowance to children is to teach the child about the value of money and financial responsibility. However, the survey found, allowance money is rarely saved. Parents say most of their kids’ allowance is spent on outings with friends (45%), digital devices or downloads (37%), or toys (33%).
That’s a mistake, according to Gregory Anton, chair of the AICPA’s National CPA Financial Literacy Commission, who says that “ “Simply handing money over to a child without guidance is a missed opportunity. By making an allowance a teachable moment, parents will help instill money management skills in their child at a young age that will help prepare them for the important financial decisions they’ll have to make when they’re older.”
The AICPA’s National CPA Financial Literacy Commission recommends that parents who choose to provide an allowance use it to help their children understand the value of money. For parents looking to teach their children about financial responsibility using an allowance, here are some tips:
- Start early
“Once your child expresses a want, discuss the foundations for budgeting—delayed gratification and saving for a goal. Give them small jobs to earn their own money to pay for toys or other wants and help them see their efforts grow with a chart on the fridge showing the progress they are making towards their goal.
- Set clear parameters
“If you decide to provide an allowance, make sure your children understand why they are getting it, how they can earn it, and how they can lose it. Some may choose to base an allowance on the completion of chores and make deductions for any chores that aren’t finished. Others may set a base allowance and provide opportunities to earn additional pay for extra chores that are completed. Bottom line, earning money helps to teach children the value of money.
- Use an allowance to talk about budgeting
“Rather than giving your child money to spend freely, consider an allocation process that rewards them for both short- and long-term thinking. Encourage them to set aside a percentage of the money they earn each week for certain spending categories-such as outings with friends, short-term savings; and long-term savings (e.g., a college fund). Encourage even more savings by offering to match their long-term savings stockpile dollar for dollar
- Discuss impact of impulse purchases on goals
“Let your child set his or her own goals and provide guidance to help reach them. Along the way, teach the principles of saving and budgeting. If a new game console is on their want list, show them how to calculate the amount that needs to be saved each week to reach that goal. For instance, if he or she receives $30 a week, but wants a $240 gaming system, help your child understand that reaching the goal requires eight weeks of allowance. Then, if there is temptation to splurge on a spontaneous item, like candy in the check-out aisle, ask whether it fits into their budget. This will help teach how skipping short-term wants can help them reach their long-term goals.
Research contact: @AICPA