Do you pay your kids an allowance? Should you? And if so, should they have to do chores to earn it?
As more people recognize the importance of financial literacy for children, experts are debating how most children are first introduced to the concept of money—the weekly allowance.
Ron Lieber, personal finance writer for The New York Times, says he and his wife pay their 7-year-old daughter $3 a week, no chores necessary. One dollar goes in a “save” jar and one goes in a “give” jar for a cause of her choosing. The final $1 she can spend as she wants. Lieber argues that an allowance is a teaching tool and making it contingent on chores muddies the issue. What if the children decide they don’t want money? Do they still have to do the chores?
Lewis Mandell, professor emeritus at the State University of New York, Buffalo, however, says unconditional allowances are a “terrible idea,” citing a study that showed kids who received a regular allowance with no work involved left high school knowing less about personal finances than kids who received no allowance.
According to a 2016 survey by the American Institute of CPAs, 68% of parents pay an allowance and require their children to work for it. On average, kids are completing chores about 6 hours per week and earning approximately $4.43 per hour.
The AICPA’s National CPA Financial Literacy Commission believes allowances (with or without chores) are a good way to teach children financial responsibility and encourages parents to talk to their children about good financial habits.
Here are a few tips to help you teach your own children how to manage money:
- Use the allowance as a tool to reinforce good money habits from an early age. Talk about finances early and often, and set a good example.
- Consider matching their savings. To encourage savings, tell your children for every $1 they set aside for long-term goals, you’ll match it in their savings account. Then let them watch the money accumulate.
- Gradually introduce them to financial products. Start by depositing their allowance into a piggy bank, then a savings account, and later a share draft/checking account.
Kids who learn to manage money at an early age are better prepared to handle their finances when they leave home. And, ultimately, teaching children good financial habits is a sound investment for parents; your child is less likely to find themselves in dire financial straits, needing you to bail them out.