by Scott Christianson, CFP®
Senior Vice President, Portfolio and Wealth Management
This is a great time of year to remind children of the long-term benefits of cash over candy. Many families welcome the “Switch Witch” to their home who magically replaces candy with cash once kids have had their fill. Not only will your investment advisor support this tradition, but your dentist will likely applaud the efforts as well.
Beyond Halloween, teaching children sound money-management skills will serve them well throughout their lives. A good place to start is with an allowance.
The American Institute of Certified Public Accountants recently published a survey on the current state of allowances and found that:
Two-thirds of parents give their child an allowance
The average weekly amount is $30
Four-in-five parents who give an allowance tie it to doing household chores for an average of five hours a week
Only 3 percent of parents say their children primarily save their allowance, instead spending money on outings with friends, digital devices and downloads, and toys
A full three-quarters of Americans say the most important purpose of providing an allowance is to teach children the value of money and financial responsibility and 92 percent believe it is very important for their children to understand how to effectively manage their own money.
Here are some additional insights gathered from the AICPA Financial Literacy Commission and the Certified Financial Planner Board of Standards:
1. Start at an appropriate age. Children start learning about money in school at age 6 or 7. Begin with a weekly allowance equal to half your child’s age. The amount is less important than what he or she does with the money.
2. Set clear parameters. Make sure your children understand why they are getting an allowance, how they can earn it and how they can lose it.
3. Model how you make spending decisions. Explain money decisions as you shop, cook and pay bills. Discuss “wants” and “needs.” About half the parents surveyed said they took time every week to teach their children about money.
4. Use an allowance to teach budgeting. Help children calculate the amount that needs to be saved each week to reach a long-term goal. Encourage them to set aside money for giving or savings. Include some money your children can spend however they want to gain experience in making spending decisions.
5. Let them make mistakes. Learning from their mistakes helps children become adults who can manage money.
6. Pay teenagers monthly. This allows your teen to learn to budget over a longer period of time. Introduce them to financial institutions for their savings. Teens should be familiar enough with your family’s financial circumstances, for instance, to know if they will have to pay for all or part of college themselves.
There is no doubt that money matters can be challenging, whether you’re a first grader learning how many quarters are in a dollar or an adult navigating a complicated world. Being a good role model to your children and providing firsthand experience in earning, saving and spending will provide them with the skills needed to succeed in the future.
Our Wealth Horizon™ forecasting solution can help you address your own financial planning questions and overall goals. Your portfolio manager at Ferguson Wellman or West Bearing can get your started or help you update and revise your plan periodically.