By Stuart L. Ritter, CFP® , T. Rowe Price Senior Financial Planner
Allowance has been a hot topic between parents and kids forever. Some of us grew up doing chores to earn a few extra dollars, others simply just asked mom or dad for cash when we needed it. Regardless of your family’s philosophy on allowance, we can all agree that kids are curious about money and love to stuff a few bucks into their piggy banks whenever they can.
Each year, T. Rowe Price conducts a Parents Kids and Money Survey asking kids ages 8-14 and their parents about various money topics. When it comes to allowance, T. Rowe Price found that the amount of money given to kids has increased. While most kids still receive a weekly allowance in the $1-$20 range, the number of parents giving $21 or more each week rose from 7% to 14% between 2011 and 2013.
So kids are making out like bandits, but do they know why? Allowance can be a great opportunity to teach kids about money matters – after all, this is their money and they have a vested interest. It’s easier than you think, and parents don’t need to be financial experts to share the basics with their kids.
Start with inflation: talk to your kids about what items cost when you were younger – maybe an ice cream cone or a baseball card – and explain how over time the cost of that item has gone up. As the cost of these items has gone up, so has the amount of money we earn through jobs or allowance, and share with your kids how much you earned through allowance or odd jobs when you were younger.
Second, remind your kids that being smart with money can help them plan for inflation as they grow older. Share examples of how your family is planning for the future – maybe your family saves for retirement in a 401(k) plan, or puts some money aside for unexpected expenses or your kids’ college..
Finally, use allowance as an opportunity to talk to kids about the importance of setting financial goals. Help your kids understand how much money they will receive each week through their allowance and what they can expect to earn over the course of a month. Maybe they are hoping to buy a new video game – how many weeks of allowance will they need to save to reach their goal? Helping kids set realistic and tangible goals for their earnings will not only educate kids on the importance of saving but will also allow them to see the fruits of their labor.
Regardless of how well you understand finance, the best thing parents can do to help kids learn smart money habits is to just start talking. For most families, getting started is the hardest part! T. Rowe Price is here to help with MoneyConfidentKids.com, a mobile-friendly website for parents and kids with interactive games, activities, tips, and information to help parents and kids have useful discussions about many financial concepts. By taking advantage of teachable moments like allowance to start talking about money from an early age, kids will be on the right path to a successful financial future.
Stuart Ritter is a financial planner in T. Rowe Price¹s Financial Planning Services Group and a vice president of T. Rowe Price Investment Services, Inc. designing, building, and implementing guidance and advice services to assist customers in achieving their financial goals. A father of three young kids, Stuart was one of T. Rowe Price¹s primary collaborators with Walt Disney Imagineering and Walt Disney Parks & Resorts Online on the creation of The Great Piggy Bank Adventure®. He is a strong advocate for starting earlier in having money conversations with your children.