A new CreditCards.com poll of U.S. parents with children under 18 revealed only 40 percent of those kids get an allowance. And 1 in 4 respondents said their parents gave them no education on money topics while they were growing up. Find out why giving children allowances is important, in tandem with educating them about money matters.
One of the best ways to teach children about money and help them develop sound financial habits is to have them earn an allowance.
Yet, the latest Teaching financial literacy to children and teens
Gender inequality strikes again
According to the study, men were more likely than women to learn about investing from their parents (25 percent versus 19 percent), whereas women were more likely to learn about giving (40 percent versus 35 percent).
“In an alarming way, I love this study because I see this play out in my work with sex, money and power,” Arizona-based psychotherapist Debra L. Kaplan said.
Women are so afraid of money, and they believe their financial illiteracy is a permanent status, she added.
The aim of financial therapy is to help individuals and couples understand what core beliefs drive their current narratives and behaviors with money and work.
“According to this particular study, 25 percent of men versus 19 percent women were taught about investing and money, and I observe this reality in the many couples with whom I work,” Kaplan said.
She also pointed out that female boomers were often likely taught that giving money will endear them to a partner rather than investing it and gaining financial independence.
This belief system further widens the knowledge and confidence gap between an old historical gender split, she said. However, that is changing.
“Today, millennials and Gen Xers are nurtured to believe in their own sense of agency, and work is seen as a way to achieve independence,” Kaplan said.
See related: Kids learn best by practicing their money skills, study shows
CreditCards.com’s poll: key findings
Here are some other major conclusions from our latest poll:
- The weekly median amount for allowance: Among those children who receive allowances, the median weekly amount is $4.
- The median age to receive an allowance: Eight was the median age at which children began receiving an allowance.
- Parents pay mostly in cash: Sixty-one percent of parents pay their children’s allowances in cash, 10 percent of parents pay via mobile payments such as Venmo or Cash App, 10 percent make a direct bank transfer, 10 percent pay with a debit card (including a prepaid or gift card) and 9 percent said they pay another way.
- Millennial parents use mobile the most: Millennial parents are most likely to give their children an allowance through a mobile payments service (15 percent).
- The more you learned, the more you earn: Respondents with higher annual household incomes were more likely to receive money lessons from their parents (82 percent in the $80,000-and-up per year bracket got money coaching from their parents versus 71 percent in the under-$40,000-per-year bracket).
- Money lessons differed: Sixty-five percent of those surveyed said their parents or guardians taught them about saving, 45 percent said spending and 38 percent said giving. Borrowing and investing fell further down the list, at 25 percent and 22 percent, respectively.
- Gender factored in: Men were more likely than women to learn about investing from their parents (25 percent versus 19 percent), whereas women were more likely to learn about giving (40 percent versus 35 percent).
The survey of 2,694 U.S. adults was conducted online between May 15-17, 2019. See survey methodology
Financial education is essential
Gaining financial independence is a key developmental milestone in the transition to adulthood, said Emily N. Garbinsky, assistant professor of marketing at University of Notre Dame’s Mendoza College of Business.
Part of that process for many teenagers is earning their first paychecks, which means having to make decisions about saving and spending income, she noted.
This is particularly true when it comes to higher education. Garbinsky said while some teens will receive financial assistance from their parents or scholarships, many will have to decide independently how much debt they’re willing to take on to pay for college.
These are important decisions because, according to The Atlantic, most high-schoolers plan on earning a college degree. But student loan debt is at an all-time high, and many of today’s children are likely to begin adulthood paying off money borrowed to fund their education.
Sharing financial lessons with your child can be critical – certainly preferable to letting him or her learn money management the hard way as an indebted young adult.
“Whether or not you choose to give your child an allowance is a personal decision, but you absolutely need to find ways to teach them about money,” said Ted Rossman, senior industry analyst at CreditCards.com. “The subject is woefully undertaught by most schools, and personal finance is a critical life skill. As early as preschool, I recommend talking to your kids about things like needs versus wants, where money comes from and the value of a dollar.”
Investing lessons take a back seat to savings education
Although 65 percent of those surveyed said their parents or guardians taught them about saving, only 22 percent were taught about investing.
And Rossman thinks that’s a mistake.
“I’m happy to see that so many Americans learned about savings from their parents, but savings’ cousin investing has been neglected,” he said.
Because of the magic of compound interest, if you start investing at an early age, you can amass an impressive sum by socking away far less than someone who starts much later and wants to achieve the same result.
For example, say you’re 30 and you’ve saved up $10,000. That would be worth nearly $150,000 when you turn 65 — assuming you get an 8 percent return and make no additional contributions.
“I wish more people took advantage of that,” Rossman added.
See related: Credit scores and your kids: How to explain to them what they are, how they work
Digital payments rule
You might be surprised that only 10 percent of parents pay their children’s allowances digitally.
Rossman approves of parents who pay that way. He cited RoosterMoney, Greenlight, Current and goHenry as good examples of services that have been designed to teach kids about money with appropriate training wheels.
“I like the idea of paying an allowance digitally because cards and apps are how children will be transacting once they grow up,” he said.
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,694 adults. The survey was conducted online between May 15-17, 2019. It employed a nonprobability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.