A penny earned is not likely to be a penny saved for children today. A new AICPA survey found that kids are raking in an average of $30 a week in allowance, enough to save around $1,500 in a year. In just a few years, a diligent saver could buy their first used car.
However, it’s concerning that only 3 percent of parents say their kids primarily save their allowance. These are among the findings of a new telephone survey of 1,002 U.S. adults conducted by The Harris Poll on behalf of the American Institute of CPAs (AICPA).
Three-quarters of Americans (75 percent) say the most important purpose of providing an allowance to children is to teach the child about the value of money and financial responsibility. However, the survey found, allowance money is rarely saved. Parents say most of their kids’ allowance is spent on outings with friends (45 percent), digital devices or downloads (37 percent), or toys (33 percent).
“One of the best gifts we can give our children is a solid education on how to manage their money,” said Gregory Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission. “Simply handing money over to a child without guidance is a missed opportunity. By making an allowance a teachable moment, parents will help instill money management skills in their child at a young age that will help prepare them for the important financial decisions they’ll have to make when they’re older.”
Allowance Hourly “Pay” Rate is Increasing Faster Than American Wages
The average monthly ‘salary’ among allowance earners is $120, as reported by their parents. While the average hours of chores a week required by parents to earn an allowance are on par with 2016 (5.1 hours in 2019 vs. 5.3 hours in 2016 ), the hourly pay rate for children who have to work for their allowance has seen a dramatic 38 percent increase, rising from an average of $4.43 in 2016 to $6.11 in 2019. Across the same time span, the average hourly pay rate for all Americans increased by 10.5 percent ($25.43 in 2016 vs. $28.11 in 2019 ) according to the Bureau of Labor Statistics.
Allowances Typically Aren’t Gifted
More than 4 in 5 (86 percent) Americans believe kids should receive an allowance, most commonly saying every cent should be earned and linked to chores (52 percent). While a quarter (27 percent) believes it should be partially earned and partially gifted.
The survey found that two-thirds of parents (66 percent) give their child an allowance or spending money that the child is not required to pay back. Four out of five (80 percent) parents who provide an allowance would be quick to point out that their kids are not getting a free ride, as they expect their children to work (e.g., completing chores) at least one hour a week. On average, children are spending about 5.1 hours a week doing chores to earn their allowance.
Parents Should Make Sense of Dollars & Cents
The vast majority of parents (92 percent) believe it is very important for their child to understand how to effectively manage their money, which is good news. And many appear to be putting in the work to develop those money management skills. Half of parents (49 percent) say they take time to teach their child about money at least once a week, including a third (34 percent) who say the lessons/conversations occur multiple times a week. Concerningly, a little more than 3 in 10 (32 percent) parents only teach their children about money once a month or less, including the 7 percent that admit they’ve never taught their kids about money.
“When it comes to managing money, a child’s first lesson should come at home,” added Anton. “From explaining how many quarters are in a dollar, to helping children start a savings account to watch their money grow with interest, parents have the opportunity to establish a strong foundation of financial knowledge for their children that will benefit them their entire life.”
The AICPA’s National CPA Financial Literacy Commission recommends that parents who choose to provide an allowance use it to help their children understand the value of money. For parents looking to teach their children about financial responsibility using an allowance, here are some tips:
- Start Early
“Once your child expresses a want, discuss the foundations for budgeting– delayed gratification and saving for a goal. Give them small jobs to earn their own money to pay for toys or other wants and help them see their efforts grow with a chart on the fridge showing the progress they are making towards their goal.” – Jaleigh White, CPA member of the AICPA Financial Literacy Commission
- Set Clear Parameters
“If you decide to provide an allowance, make sure your children understand why they are getting it, how they can earn it and how they can lose it. Some may choose to base an allowance on the completion of chores and make deductions for any chores that aren’t finished. Others may set a base allowance and provide opportunities to earn additional pay for extra chores that are completed. Bottom line, earning money helps to teach children the value of money.” – Matthew Rosenberg, CPA member of the AICPA Financial Literacy Commission
- Use an Allowance to Talk About Budgeting
“Rather than giving your child money to spend freely, consider an allocation process that rewards them for both short- and long-term thinking. Encourage them to set aside a percentage of the money they earn each week for certain spending categories like outings with friends, short-term savings, and long-term savings such as a college fund. Encourage even more savings by offering to match their long-term savings stockpile dollar for dollar.” – David Almonte, CPA member of the AICPA Financial Literacy Commission
- Discuss Impact of Impulse Purchases on Goals
“ Let your child set their own goals and help guide them towards them. Along the way, teach the principles of saving and budgeting. If a new game console is on their want list, show them how to calculate the amount that needs to be saved each week to reach that goal. For instance, if they receive $30 a week, but want a $240 gaming system, remind them that their goal equals eight weeks of allowance. Then, if there is temptation to splurge on a spontaneous item, like candy in the check-out aisle, ask whether it fits into their budget. This will help teach how skipping short-term wants can help them reach their long-term goals.” – Monica Sonnier, CPA member of the AICPA Financial Literacy Commission
- Talk Often
The more you engage your child in financial discussions, the more likely they are to learn. For insight on how to talk to your kids about money, check out the AICPA’s 360 Degrees of Financial Literacy website at www.360FinLit.com. There you will find an assortment of free videos and articles about the basics of budgeting as well as a collection of calculators to help show and track financial progress.
This survey was conducted by The Harris Poll via telephone within the United States between August 22 and 28, 2019, among 1,002 adults aged 18 or older, among whom 273 identified themselves as a parent or guardian of at least one child aged 25 or younger who is living at home. 401 interviews were obtained from landline sample and 601 interviews from the cell phone sample Figures for age, sex, race/ethnicity, education, and region were weighted were weighted where necessary to bring them in line with the U.S. population.
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with more than 429,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives professional competency development to advance the vitality, relevance and quality of the profession.
About the Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs (AICPA) and The Chartered Institute of Management Accountants (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 657,000 members and students across 179 countries and territories in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMAs and accounting and finance professionals globally.