Saving

3 ways to help your kids make the most of their allowance

Alizah Salario@alirosa
Twenty/20

If you want your kids to save part or all of their allowance, make it easy for them. Consider getting them a savings jar or even opening them a bank account.

Two in three parents give their child an allowance. They dole out an average of $30 per week, according to a recent survey of 1,002 adults conducted by The Harris Poll on behalf of the American Institute of Certified Public Accountants, and in many cases the money is linked to the completion of household chores.

But only 3% of parents report that their kids primarily save their allowance, a figure that the AICPA finds "concerning."

Nearly all, or 92%, of parents say it's important for their child to learn how to manage money, and helping your kids become savers early on is a great way to make that happen. By saving a third of a $30 weekly allowance, your child would be able to sock away over $500 every year.

"It's a missed opportunity, generally, if you're not taking to your kids about money," says Paul Golden, managing director at the National Endowment for Financial Education. "It's still parents who have the most influence [on kids' money habits]. They're the front line of defense."

What kids earn
The top-paying chores for kids in the U.S.
kiersten schmidt/grow Rooster Money

Here are three ways you can use an allowance to teach your kids about money management and help them to make the most of it over time.

1. Set kids up to be savers

Encouraging your kid to save even part of their allowance can help them establish healthy financial habits. Start by conditioning your kids to automatically save a certain amount each month because "then they don't miss it," says Golden.

With younger children, Golden suggests using a savings jar so they can see the money building up. Then, once your child starts asking about how banks work, consider opening a savings account. Pay attention to their cues and take advantage of their interest, he says.

"Once you've started with the habit of saving when you're young, you start seeing what saving [money] actually does for you," Clark D. Randall, a certified financial planner and the founder of Financial Enlightenment in Dallas, Texas, told Grow earlier this year.

Parents are usually the No. 1 money influence on their kids. In a recent survey of "supersavers," or people who put an impressive share of their income away for retirement, 80% gave credit to their parents for positively influencing their savings habits.

It's a missed opportunity, generally, if you're not taking to your kids about money.
Paul Golden
Managing director, National Endowment for Financial Education

2. Teach them to budget

Instead of saving, kids, like many adults, put money toward the things they want in the moment. In the AICPA's survey, parents reported that kids spend most of their allowance money on outings with friends (47%) followed by digital devices and downloads (37%) and toys (33%).

Learning to budget, though, will allow your child to think about all what they want to prioritize in the coming week, month, or year.

If there's something expensive your child really wants, you can drive home the connection between spending and earning by explaining how budgeting can help them meet their goals. Let's say they want a $200 tablet but they end up blowing their allowance each week going out with friends. By setting aside, say, $20 of their $30 allowance, they can count on getting what they want in only 10 weeks. If they want it sooner, they can sock away the full $30 each week.

And if they continue to splurge instead of save, don't get mad.

"It's OK to make mistakes," says Golden. "That starts to condition us as adults. There's not some fairy that will come down and get you through till the next paycheck" when you're an adult, either. So the best time for kids to trip up is when parents are there to guide and counsel them, and help them figure out what to do better going forward.

3. Help them differentiate between wants and needs

By helping them learn to budget for short- and long-term goals at a young age, you're setting your kids up to tell the difference between wants and needs, explains Golden.

Older kids may have to cover bills for the first time. "Once you have teens, they have to start prioritizing things they've never done [before], like putting gas in the car or paying for auto insurance," he says.

Condition kids to put money aside by encouraging them to save and budget starting at a young age, and they'll be prepared to put their needs first. That, in turn, can help them avoid certain pitfalls of overspending, like winding up without money for gas.

Bonus advice: How much to give and how to set an example

Exactly how much you give for an allowance depends on the economics of the household, says Golden. What's more important is the "mechanics" of it. By that he means that it's helpful to give a consistent amount on a consistent basis, "because it's like getting a paycheck."

When kids budget based on knowing they're receiving a fixed amount, that prepares them to prioritize how they use their money and make smarter spending choices down the line.

And ultimately, it's what you do, not what you say, that matters. "Kids are watching behaviors," says Golden. "They will practice what they see being done. My advice to parents is to recognize your mistakes, and use them as teachable moments for both your kids and yourselves."

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