In the News: Making Allowance a Teachable Moment
When I reflect upon my childhood, I fondly recall my elementary school days at P.S. 116 in Manhattan. Despite enjoying school, my favorite time of the year was when I would proudly present my parents with my final report card of the school year. The reasons for this were two-fold: like most kids, I always looked forward to my summer vacation, and I knew that if I got good grades my parents would reward me with a gift of my choice (usually a Nintendo game).
As I turns out, I wasn’t the only kid being compensated for doing well in school. According to a recently released AICPA survey on how parents treat the subject of money with their children, 48 percent of parents say that they pay their kids for getting good grades. As CNN Money noted, the survey showed that the going rate for an ‘A’ is $16.60, which makes me think my parents were getting off easy back in the day.
"These findings make clear that it can pay to be a kid," said Jordan Amin, chair of the AICPA’s National CPA Financial Literacy Commission.
In addition to parents paying their children for their academic performance, the survey found that kids get an average of $65 a month in allowance – and that only 1% of them save any of it.
"Parents should have a conversation with their children about the importance of saving," Clare Levison, a member of AICPA’s National CPA Financial Literacy Commission and a mother of two, told Yahoo! Shine. "I would also basically set up the expectation that some of those things that children want are going to have to be purchased with the money kids have set aside."
My parents rewarding me for doing well in school was their way of teaching me that hard works pays off. I also remember them using my allowance to teach me about budgeting. To me, this meant being taught that if I chose to squander my allowance on treats from the ice cream man, I would not be ripping open a pack of baseball cards until I received my allowance again.
“As parents, we feel a strong commitment to our children and ensuring they have all that they need to succeed. One of the best gifts we can give them is a solid education on managing money,” Amin said.
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.