I talk to parents all the time who say they won’t pay their kids an allowance. I get the argument; our kids live in our houses and should do what we ask regardless of reward. Sound familiar? Allow me an opportunity to tell the other side of the story.
Ultimately, we are financially responsible for our kids until they are 18 (and yes, I know it is 26 in many families these days). Sure, we can say “no” to certain expenses, but that movie they are going to with friends or the new shirt for school is going to come from our money one way or another. By allowing your kids to earn and manage that money on their own, you can help them get a smarter start in life more than you may realize.
The overall lack of financial literacy skills in the US is a major issue – any objections to that assumption? By helping our kids to be more financially literate today will help them become more financially responsible adults tomorrow. I was speaking with a Harvard University economics professor who mentioned he had economics majors entering Harvard who didn’t understand the basics of interest rates. This may explain why 62% of student loan recipients say they didn’t try or didn’t know to figure out how much their monthly payments would be. Because they don’t know the basics of interest rates, they have no concept of how a $1,000 loan isn’t $1,000, but rather $1,100. Because of this, 11.5% of 2014 college graduates have loans in default.
If you are one of the parents, I mentioned earlier, who don’t believe in giving your kids allowance, you certainly aren’t alone. Just 44% of parents let their kids decide how to save and spend their money on their own. What is interesting – of those that do: 76% talk to their parents about money, 91% say their parents set a good financial example, and 62% have a savings account. Now the other side – of those that don’t: the majority spend their money as soon as they get it, half have lied to their parents about how they spend money, and 65% expect their parents to buy them what they want.
KIDS LEARN THIS STUFF BY DOING! You can’t simply tell them about this and expect them to understand it. Let me tell you about the “cleat story.” My friend (and boss!) Benny has two boys who play football. Every summer, he buys them cleats for the upcoming season. So, they go to the store or online and pick them out. The boys’ eyes are drawn to brands, styles, or colors, and that is how they make their decision. The typical spend per pair is around $90, but the kids don’t care about that; it just goes on dad’s credit card. This year, he took a different route. He gave each of his kids $90 in their Jassby accounts and told them to get whatever cleats they wanted. He then explained that whatever was left, they could spend on whatever else they wanted. What do you think happened? These kids became educated consumers immediately; they researched cleats and checked sales, they weighed features vs. cost, and in the end, they each got cleats for $55-$60 and pooled their remaining money to buy a video game they had wanted.
Mom and Dad – these kids aren’t learning about money in school. The only way we can expect the next generations to understand money and finances better is by teaching them at home, with hands-on experience. It doesn’t have to be a lot of money. Start with a few bucks a week. I’ve always thought a dollar for each year of their age per week was a good number (so, my 12-year-old would get $12 per week). Download Jassby in the Apple Store and set your family up – you can set up the allowance to be automatic and also assign chores and budgets. You will see the difference. And it may just ease the family finance tensions we all feel.