Many parents opt to give their kids a weekly allowance not because they need the cash — but to jump start their educations in financial literacy.
After all, it’s never too early to start practicing good money habits, and giving kids an allowance allows them to learn how best to spend and save it, experts say.
Parents seem to be on board — 69% percent of them doled out regular allowances last year. Children between the ages of 4 and 14 earned an average of $ 499 — or $ 9.59 a week — up 6% from a year earlier, according to a study from RoosterMoney, a kids allowance and chores app. The study’s findings are based on the spending habits of nearly 50,000 of the app’s users.
The young recipients didn’t spend it all on candy and Legos and electronics — they saved a hefty 42% of their allowances last year. Their parents, on the other hand, saved less than 8% of their incomes, according to online database Statista.
Like learning a foreign language
Obviously, kids don’t have the same financial responsibilities as their their parents do. But RoosterMoney’s allowance report indicates that receiving a regular stipend helps them understand classic concepts like opportunity cost.
“I know kids don’t have the overheads of mortgages and homes and utilities, but if you can get kids engaged at an early age and build those habits to an extreme, that’s something that will stay with them for life,” said Will Carmichael, CEO of RoosterMoney.
Learning financial literacy is much like learning a new language: “It’s so much easier to learn as a child than as an adult,” Carmichael said.
Legos still own kids hearts — and wallets
Lego sets, which were first sold in the U.S. in the 1960s, were the most saved-for item in 2019, RoosterMoney reported.
Two weeks on an average allowance buys a kid an Audi sports car Lego set, which costs $ 19.99 on the toymaker’s website. More elaborate designs costs hundreds of dollars.
Electronics including phones and the Nintendo Switch video game were also near the top of the list of the most-saved-for items. Other bigger ticket purchases that kids saved their allowances for included dolls, bikes and computers.
Carmichael said kids benefit from seeing their allowances accrue over the course of a year.
“When kids see their pocket money add up over the year, they are engaged in a routine, versus when parents give their kids a few dollars here or there or buy things for them weekly there is less opportunity to turn that into a teachable moment,” he said.
And with kids, a little goes a long way: “You don’t need to give much to turn it into a lesson about responsibility with cash,” Carmichael said.
Kids were also quick to spend their pocket money on less expensive rewards like books and magazines, presents and candy, according to RoosterMoney.
Avoiding costly mistakes down the line
Allowing kids to experiment with money gives them the opportunity to make mistakes early on — when the stakes are lower.
“Kids need to learn these skills if they are going to successfully manage their money later as adults. We believe that the earlier you begin to teach and prepare your kids, the more time they have to learn, ask questions, and make mistakes in a safe and supervised way,” said Tim Sheehan, CEO and co-founder of Greenlight, a debit card designed for kids.
Carmichael said the RoosterMoney survey’s results were heartening.
“If you give kids the opportunity to start engaging with money and making decisions for themselves, you get great results like 42% of their money being saved,” he said. “Hopefully it highlights to parents that this is a great opportunity to get kids engaged and build habits that will stick with them for life.”