A survey by the AICPA (The American Institute of CPAs), “CHILDREN’S ALLOWANCE PAY IS UP – AMOUNT SAVED ALARMINGLY LOW,” has received a fair amount of press since it came out on October 1, 2019. The New York Times included some brief thoughts about allowance from me (Woo hoo!) as an additional perspective.
The survey’s top four takeaways are as follows:
- Children average $30 a week in allowance.
- Kids are averaging $6.11 an hour to do chores, up 38 percent from 2016.
- Two-thirds of parents give their children an allowance.
- Four out of five allowance-providing parents expect their kids to earn it.
We were glad to see that parents are providing an average allowance that is in line with The Art of Allowance program. Although we advocate starting an allowance — and the money conversation — with your child before she’s school-age, it’s never too late. If you have a teenager and would like an example breakdown of what an allowance might cover, then you can download our Breakthrough Allowance worksheet in an easy-to-use Google Sheets form.
If you’re a parent of a tween or teen receiving an allowance, then we encourage you to pay her on a monthly basis. This schedule will help her learn to manage her money more effectively (and more like real life). It also has the added benefit of simplifying things for you as a parent. And if you’re anything like me, then whatever makes life easier is worth consideration.
“One of the best gifts we can give our children is a solid education on how to manage their money…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.”
Gregory Anton, CPA, CGMA, Chair of the AICPA’s National CPA Financial Literacy Commission
While I wholeheartedly agree with Gregory Anton’s quote from the survey article above, I think the AICPA misses the point of allowance by claiming that savings rates are “alarmingly low.” (If I give them the benefit of the doubt, they might have been trying to stir up some controversy — like I’m doing with the title of this blog post.)
“A penny earned is not likely to be a penny saved for children today. A new AICPA survey found that kids are raking in an average of $30 a week in allowance, enough to save around $1,500 in a year.”
The quote above is where things go awry. The purpose of an allowance is to teach kids to become money-smart, not misers. We certainly want to encourage saving, but it is just one thing that you do with money. And it is totally unrealistic to teach children to save 100% of the money they receive.
The WHY Matters (And Mistakes Are OK)
The survey suggests that parents are concerned that allowance is a handout. In general, parents don’t want to “gift” money to their children, and we agree. That’s why the allowance WHY matters. Parents should be intentional with their kids when they start an allowance. They should let their children know that they are giving an allowance to encourage money smarts and that they will act as guides.
Saving roughly 10%, as we advocate, is not alarmingly low. It’s realistic, if not admirable (and more than what most Americans save). The purpose of an allowance is to help kids learn money smarts. Most adults — even the very money-smart ones — don’t put the majority of their money away for savings.
What’s alarming is the thought that we’d have our children making student loan decisions without teaching them money smarts. It’s good to see that parents are recognizing the importance of raising money-smart kids from a young age.
Children are going to spend their money while out with friends. They should. And they should learn to manage it in a smart way. Will they make mistakes? You bet they will. But isn’t it better for them to do so while they are young and in a “low-stakes” environment than later in life when such mistakes could cost them thousands (if not more)?
Parents Are Getting It (And We Can Help)
Fortunately, it appears that the majority of parents have started an allowance program. This is important because without physical money, financial lessons are too abstract. Kids need to practice with money just like they need a ball to train for soccer, basketball or tennis.
Three-quarters of Americans (75 percent) say the most important purpose of providing an allowance to children is to teach the child about the value of money and financial responsibility.
The vast majority of parents (92 percent) believe it is very important for their child to understand how to effectively manage their money, which is good news.
When parents start an allowance, they should be explicit with their kids that they want to highlight the key money-smart skills: distinguishing between needs and wants, setting and saving for goals and learning to make smart money choices. Children need to learn not only how to save but also how to share (give charitably) and how to spend SMART. And for young kids, saving for a goal is better than “saving for a rainy day.”
Although we may want to believe that giving a periodic sum of money called “allowance” is the magic dust to help grow a money-smart, money-empowered child, the truth is that there is no magic dust. In fact, starting an allowance is where this process gets real. You will replace abstractions like “saving for a rainy day” with saving for actual goals.
Armed with money, your child will begin to make tangible choices. She’ll make mistakes, and the small error now will help her avoid the big blunder later. You’ll want to give her some autonomy, and now is the time for you to step up as her guide rather than to step back entirely. Passivity is where many allowance programs go awry. You are her active guide. This book is your manual.
The Art of Allowance, page 7
Kids are going to spend the majority of their money on spending. It’s unrealistic to think otherwise, and we want to teach them to make smart spending choices. This is why we emphasize starting off younger children with a SPEND SMART jar to remind them that whether they’re conscious about it or not, they’re making financial decisions every time they receive and handle money. The smarter those choices are, the better.
Remember, we are ultimately trying to raise a money-empowered child. Empowerment is our watchword. We’re in it for the long haul, and we don’t want to hide the money from him. We want to teach him how to be smart about the choices he has to make with his money. Money is neither good nor evil. Money is a neutral tool he can learn to wield like an artist’s brush. You will teach him the skills to use it properly. Discuss it openly. Let him see and access his money easily.
The Art of Allowance, page 20
The survey notes that allowance rates have increased more than American wages. One possible theory: Parents are becoming more aware of the importance of providing an allowance to teach their kids to practice (and make mistakes) with money from an early age. Another reason for this discrepancy could be that US wages have stagnated for some time.
More than 4 in 5 (86 percent) Americans believe kids should receive an allowance, most commonly saying every cent should be earned and linked to chores (52 percent). While a quarter (27 percent) believes it should be partially earned and partially gifted.
The quote above underscores that there is still work to be done to help parents understand that providing an allowance that is not tied to chores doesn’t mean that it’s gifted. It might be best looked at as an investment in your child’s education. Here’s why you should consider providing your child an allowance that is not linked to chores.
The survey article wraps up nicely with key tips about which we’ve been talking for years (and earlier in this post): starting early, setting clear parameters, discussing the impact of impulse purchases (The “waiting period” section below can help you with this,) and, last but not least, talking often. This last point is reason enough to start an allowance and something I discussed with The Money Jar Guys on this episode of The Art of Allowance Podcast.
“Dad, I have $80 in my Save jar, and I want my goal to be those shoes.” Conveniently, those shoes are $79.99 including tax.
Uh oh!It’s time to invoke the “waiting period.” This time-honored strategy can help your child avoid risky, impulsive decisions that she’ll later regret. We have a guideline in our house that a sub-$100 goal requires the child to wait at least one week from when the decision is made (and ideally pasted on a jar). Over $100? You must wait two weeks. As usual, please adjust these guidelines to fit your family.
By the way, it’s never too early for any of us to take time to think before we buy stuff. Why not opt both your child and yourself into the “waiting period?” It’s a great way to avoid the
The Art of Allowance, page 36
accumulation of stuff.
That the survey has brought more attention to financial literacy is wonderful and, likely, the whole point in the first place. It’s exciting to be a part of a money-smart movement that’s catching on.
John
Cover photo courtesy of Michael Longmire on Unsplash