While parents may expect their children to put clothes in the hamper rather than dumping them on the floor, other household responsibilities such as doing the dishes and walking the dog offer children opportunities to earn an allowance and begin learning money management skills.
A 2012 survey by the American Institute of CPAs (AICPA) found the vast majority of parents require their children to earn their allowance. Eighty-nine percent expect their children to work at least one hour a week and, on average, children put in 6.2 hours per week on chores.
Learn to Earn
When allowances are tied to chores, kids can learn about earning, spending and saving. When coming up with an allowance plan, families need to make decisions, including: What age will you start providing an allowance? How often will they receive it? How much should you give each child? Will you monitor how they spend their allowance? What will they start buying for themselves and what will you still pay for?
We asked a few Northeast Ohio parents who have a background in finance to share what works for their families.
“We started providing a weekly allowance at about 5 years old,” said Lisa MacKay, a Peninsula mother of four and operations associate at Broadleaf Partners, an investment management firm in Hudson. “At age 5, they can do easy chores and you can start teaching them how to do those things by doing it with them.”
Catherine Anthony-Gudel, a Middleburg Heights mother of one, who works at KeyBank in Cleveland, began providing a weekly allowance for her daughter at age 9, which she receives if she does her chores.
The AICPA study found that the majority of parents begin paying an allowance by the time their child is 8. While the amount varies by age, the average allowance totals $65 a month, which is approximately $16.25 a week.
When deciding the amount to give, it helps to go over with your kids what they will now be expected to pay for. You’ll need to discuss how much they will “need” per week, and then you can determine what’s a fair price for each chore accordingly. As they get older, these needs will change, and you can revisit your chore plan.
Some parents choose to provide basic wardrobe or outing needs, letting the kids pay for anything extra from their earned allowance. Others might have their children save up for one special item or event.
“Parents need to make sure they’re also passing along financial sense with those dollars and cents,” said Jordan Amin, CPA, chair of the AICPA’s National CPA Financial Literacy Commission. “Earning, budgeting and saving are all important lessons that can be tied to allowances — lessons that can help put children on solid financial footing.’
Knowing how much they will earn on a regular basis helps kids manage their funds. This will get them thinking about the costs of items and making choices. Hopefully, they will develop an appreciation for things they buy when they use their own money.
“It’s easy (to monitor how they spend their allowance) when you’re the one who is taking them to the store,” Anthony-Gudel said. And MacKay adds that her kids can ask for extra responsibilities if they want something more quickly.
“One of mine just did a bunch of extra chores to earn enough for a new bike,” she says. “Also, they can consider if they want a less expensive version if they want something more quickly. However, I have also encouraged my kids to consider saving longer to buy better-quality products.”
Saving for the Future
When asked about how to instill good money management skills, Anthony-Gudel recommended having conversations with your children about budgeting and saving money.
“(My daughter) will be opening up a savings account when she turns 13 this summer,” she said. “I have also taken her to turn her saved coins into cash, which she enjoys. She is always amazed at how much money her small saved change can bring her.”
In the MacKay family, Lisa’s husband Doug, who is the chief executive officer and chief investment officer at Broadleaf Partners, has created a stock portfolio for each child that includes money and gifts to them over the years.
“I’ve bought stocks for them that they know and understand brand-wise, names whose products they likely use,” he said. While the kids haven’t been that interested in their investment portfolios, just yet, Doug hopes that as they come to understand it, their interest and involvement will grow — along with the earnings.
“As parents, we feel a strong commitment to our children and ensuring they have all that they need to succeed,” Amin said. “One of the best gifts we can give them is a solid education on managing money.”
Anthony-Gudel added, “Definitely begin a 529 educational account as soon as the child is born. You have different options if you want to place your money in aggressive funds or not. And by the time your child reaches 18, he or she will have something to help out with college.”
With input and guidance, parents can lead children to a smarter, wiser future. Share what works for your family at [email protected]
For more tips from The National CPA Financial Literacy Commission, click here.