America's kids are flush with cash, but little of that green is getting socked away for a rainy day.
That's the finding of a new survey by The American Institute of CPAs (AICPA), which found that children are collecting an average of $30 each week in allowance... enough to save about $1,500 each year.
That sum could pile up over just a few years, allowing the purchase of a used car, laptops and technology, or all kinds of other productive goods. Instead, the phone survey of just over 1,000 adults found that just 3 percent of parents say their kids primarily save their allowance.
“One of the best gifts we can give our children is a solid education on how to manage their money,” said Gregory Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission. “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.”
Among the other findings:
- 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. However, parents surveyed say most of their kids' allowance is spent on outings with friends (45 percent), digital devices or downloads (37 percent), or toys (33 percent).
- The average monthly ‘salary’ among allowance earners is $120, as reported by their parents. While the average hours of chores a week required by parents to earn an allowance are on par with 2016 (5.1 hours in 2019 vs. 5.3 hours in 2016), the hourly pay rate for children who have to work for their allowance has seen a dramatic 38 percent increase, rising from an average of $4.43 in 2016 to $6.11 in 2019. Across the same time period, the average hourly pay rate for all Americans increased by 10.5 percent ($25.43 in 2016 vs. $28.11 in 2019) according to the Bureau of Labor Statistics.
- 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). A quarter (27 percent) believes it should be partially earned and partially gifted.
- Four out of five (80 percent) parents who provide an allowance would be quick to point out that their kids are not getting a free ride, as they expect their children to work (e.g., completing chores) at least one hour a week. On average, children are spending about 5.1 hours a week doing chores to earn their allowance.
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.” – Jaleigh White, CPA member of the AICPA Financial Literacy Commission
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.” – Matthew Rosenberg, CPA member of the AICPA Financial Literacy Commission
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 like outings with friends, short-term savings, and long-term savings such as a college fund. Encourage even more savings by offering to match their long-term savings stockpile dollar for dollar." – David Almonte, CPA member of the AICPA Financial Literacy Commission
Discuss Impact of Impulse Purchases on Goals
“Let your child set their own goals and help guide them towards 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 they receive $30 a week, but want a $240 gaming system, remind them that their goal equals 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.” – Monica Sonnier, CPA member of the AICPA Financial Literacy Commission
Talk Often
The more you engage your child in financial discussions, the more likely they are to learn. For insight on how to talk to your kids about money, check out the AICPA’s 360 Degrees of Financial Literacy website at www.360FinLit.com. There you will find an assortment of free videos and articles about the basics of budgeting as well as a collection of calculators to help show and track financial progress.
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