AllowanceHow much does it "pay" to be a kid? According to a new survey, quite a bit: an average of $16 a week, or $780 a year.

That's what the American Institute of CPAs discovered when they teamed up with Harris Interactive to explore the ways parents handle their children's allowances. But the study also showed that parents aren't using allowances to do the very thing they're meant accomplish -- to teach kids how to handle money.

If your child is getting an allowance, but not getting a financial education, here's how to begin correcting that:

Start With This Idea -- Money Is a Limited Resource: In my mind, the primary purpose of an allowance is to teach kids that money is a limited resource. Throughout your life, you will have a finite amount of money to work with -- whether it comes from a paycheck, a pension, a Social Security check, or some other source -- and you need to be able to manage that amount to cover your needs and build up a cushion for the future (i.e. savings). How well you do this dictates how much you'll have left over for the things you want. An allowance gives kids a way to replicate that process ... with training wheels. Except that most parents don't know how to handle allowances.

A Paycheck That Comes With a List: To do it right, parents need to take a look at the things each of their kids asks for money for right now -- be it snacks, Silly Bandz and Kooky Penz for the littler ones; or bigger snacks, iTunes downloads and nail polish for the older ones. Figure out how much you're already shelling out to each kid for these things, as well as any other categories you want to include (entertainment with friends, school store, gas, whatever) and add it up. That sum is a starting point for calculating allowance. Tell your kids what they'll be getting, and what they're now expected to pay for -- the items you'll no longer cover. And keep tabs.

The Bank Is Closed, But Youngsters Can Still Work: After you give out the allowance for the week (and it is vital that you pay it in full and on time -- electronic transfers onto a debit card for teens can help parents manage this process), close the bank. The survey showed that parents who give allowance are also much more likely than other parents to shell out for other discretionary items like movie rentals and digital downloads. Don't.

If their allowance isn't enough for your kids to pay for the things they want to buy, they need to learn to reallocate their resources -- or they need to work. I don't mean working for the allowance. The survey showed that 89% of parents make their kids do chores for their allowance -- and 48% pay for good grades. I don't do either because I believe both are simply part of their responsibilities as a family member, though I've known parents who've had success with both. What I will do is pay for work I'd pay others to do. For example, if my high-school-aged son would stop home during his free period to walk the dog so I didn't have to pay the dog walker, I'd happily pay him instead.

Gross Up To Force Savings: Perhaps the most stunning piece of data from the research is that only 1% of parents say their child saves the allowance -- 1%! Our generation has more responsibility for our finances -- health care, retirement -- than our parents did. Chances are, our kids will have more responsibility than us. The only way for them to succeed is to learn to save. So, gross up the allowance by 10% and tell your kids that 10% must be saved for the long-term. Then check. (You can do this electronically by linking your kids accounts to your own -- which is how you facilitate online transfers in the first place -- then monitor the whole shebang online.)

Give Incentives for Other Goals: If you want your kids to donate part of their allowances to charity (something about one-quarter of kids do), make sure they have enough for that as well. And if they are trying to save for bigger purchases, consider implementing a matching program like employers do with 401(k)s that applies only to savings, to help them get there faster. If kids don't feel they're making progress, they'll give up, and that's completely counterproductive.

Finally, Maintain A Running Dialogue: According to the research, we're more likely to talk with our kids about good manners, shunning tobacco, eating well, and the dangers of drugs and drinking than we are to talk to them about money. You need to do all of the above -- even if you don't feel like you're under financial pressure yourself. Interestingly, parents who didn't graduate from college were significantly more likely to talk money with their kids than were college grads. The survey didn't ask why, but I suspect it's that resources are tighter in the homes of non-college grads. Those parents need their kids to be with the program in order to keep the family finances in line. And their kids will be better off in the long run.

-- With Maggie McGrath

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ilm9p

You want your kids to have a free ride for the rest of their lives? Then take a page out of the welfare hand book for dirty animals. Get knocked up at 14, then go down to Social Services and apply for free housing, free utilities, free healthcare, free food, free daycare for the kid, free phones, free Cable TV, free everything. Have a few more kids too, each by a different father. You'll get free healthcare for every one you sire. Then when the kids are old enough, send them to school to get free breakfast, free lunch, free school supplies, free everything. Then when they're 14 they can start the process themselves. Don't worry, there's enough hard working suckers in this Country we can tax to pay for it all.

September 19 2012 at 7:39 AM Report abuse rate up rate down Reply
Lynne Finch

Let’s remind ourselves that kids have money because adults give it to them. Even so, a 10-year old can make a decision to not spend today because he wants to do something that costs more next week. A child may not consider this a form of saving, but rather a method to get what he really wants–something that costs more than he has at the time. In my opinion, kids learn more about "saving" when the goals are short-term and decided by them.

A kid can save money by not spending generally decided by a self-motivation for a short-term goal such as tickets for an upcoming concert. A kid can save while spending, finding something for a lower price. Kids can also save by accumulating money for a long-term goal, such as college.

As well-intentioned as this is when parents require that children save a certain part of their allowance for long-term things like college, kids simply write off that money as still belonging to mom and dad. They don’t really believe it was ever theirs in the first place.

The money simply disappeared. Not only did the money disappear, the thought of ever being able to spend it is completely out of a child’s perspective. The child never really owned the money, isn’t really making the decision, and doesn’t have any comprehension what college is, hence, the money never really existed.

For kids to understand the concept of savings, the action of savings and the result of the savings need happen in a shorter time frame. A child also has to feel ownership of the money. Regardless of how we try to encourage long-term savings, in a child’s world it’s all about me and all about now.

This is where parents can provide guidance with a system that encourages kids to spend and save (even if it's only for a concert ticket) in a way that lets them see the result of their decisions.

Lynne Finch, author of "The No-Cash Allowance"

September 18 2012 at 1:21 PM Report abuse -1 rate up rate down Reply
Amanda Jones

Gross Up To Force Savings: Perhaps the most stunning piece of data from the research is that only 1% of parents say their child saves the allowance -- 1%! Our generation has more responsibility for our finances -- health care, retirement -- than our parents did. Chances are, our kids will have more responsibility than us. The only way for them to succeed is to learn to save. So, gross up the allowance by 10% and tell your kids that 10% must be saved for the long-term. Then check. (You can do this electronically by linking your kids accounts to your own -- which is how you facilitate online transfers in the first place -- then monitor the whole shebang online.)

You have to be joking me. Only one percent of the children are saving on a long-term basis!? When I was a teenager, who had just graduated high school, I was informed by my very wealthy family that I had to give them rent money to live in our 4000+ square foot home that my friend's parents would drool over. I had to give them rent every month! They made a lot of money. They made as much money a month as some people made in a year! I could not understand that. I had to work and go to college. Ok, they did foot the bill for community college, it was only CC, but they made me pay them rent. They forced me to get a job when I didn't need to get a job. They were loaded! Even my friend's parents would ask me questions like "Are you sure you live in that house?" Yeah, I'm sure I live here.

Long story short: When I moved out, at age 21 (back then you had to get out by a certain age because there was a stigma attached to living at home after so long), they gave me back all the money I gave them for rent to start my life with my husband that I had recently married. You know, I am so glad they forced me to work, go to college, then give them rent. Although they were completely loaded and didn't need to do anything for the rest of their lives, they instilled in a work ethic that propelled me to success. I am so happy they did that for me. I appreciate all that I have, I've invested and have worked really hard. I've updated my skills as time as went by and have taken on positions in the music industry that people have only dreamed about. I thank God and my family so much for helping me to see that I should not expect everything to be handed to me. You should work, save and invest. Ultimately, it's your responsibility to make it! Over time all of this will pay off. It all starts with a good work ethic!

September 18 2012 at 11:27 AM Report abuse rate up rate down Reply