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.
In addition to these tips, the CPA profession has a comprehensive financial literacy program — 360 Degrees of Financial Literacy — to help Americans achieve long-term financial success. A robust website (360financialliteracy.org) is the centerpiece of the program with tools, calculators and advice to help Americans understand and manage their financial needs during 10 life stages, from childhood to retirement. Another program Feed the Pig, created in conjunction with the Ad Council, provides tools, tips and resources specifically for youth and young adults.
