How Much Allowance Should Kids Get?

Welcome to Dvorkin on Debt. Today we're diving into a Wells Fargo study that found that parents are giving their kids an average allowance of $37 per week. 

This survey opens up a conversation about how parents teach kids about money or don't. We'll look at challenges parents face when trying to talk to their children about money. How digital payments are changing the allowance game and why letting your kid make a money mistake might actually be the smartest move you can make. So this week we are talking about a recent Wells Fargo study that found that parents are giving their children around an average of $37 a week for allowance. 

Did you ever get an allowance growing up?

I got an allowance all the time. 

Really? Absolutely. But it wasn't $37 a week. I'll tell you that much.

You got paid. 

I got paid, but I had to do stuff for it.

I still had to do stuff and I didn't get

My parents must have loved me more than yours. 

Yeah. My allowance was you get to live here and you still have to do all this stuff.

By the way, half the time my father forgot to pay me.

Okay.

So but at least you were still getting paid something.

That wasn't part of my contract. like 50 cents like a dollar.

I got this. 

However, donuts are okay. It taught you and it taught you well. Look how you turned out.

Yes. Yes. Okay. 

So, according to the study, it says that parents give an average weekly allowance of $37.

Does that surprise you? Do you How much do you think that is?

I'm actually surprised by the amount.

When I went and read that, it's almost $2,000 a year. Um, then you my tax accountant head starts walking in and that 37 is pre-tax. So, it's actually like $2500 a year. And if you have more than one kid, these kids are, you know, if you have four kids, that's $10,000 a year plus.

Yeah. And you know what? It it depends on the age. Obviously, a kid that's five years old doesn't need uh $37, but maybe somebody in high school needs a little more. But make them work for it. Whether it's making their bed, washing the dishes, raking the leaves, you know, you have chores, and reward them. And don't forget to pay them. You know, that's a thing that hey, you did this. Thank you. You get paid on Friday nights just like I get paid on Friday nights. And you every week and make it a big thing. And you know, if you decide to give your kids a raise, that's a great thing. Make them work for it. Make them earn it. Make them budget.

So if they want something, they could save up for it. giving overpaying them because they're your kid. No, they're an employee. Treat them as an employee. Pay them a fair amount and do what's commiserate with what they're doing for you.

For a lot of kids, that's probably their first uh experience with something like budgeting, earning money. That's their first money experience. So that could be really important for their development through the financial experience.

And don't be afraid to talk to kids about money. In my household, we talked about money at the kitchen table every night. We talked about business. We talked about money. We talked about world events.

Right?

You need to instill early on the importance of money.

So that brings me to my next point. It says that 71% of parents give an allowance but they feel uncomfortable talking about money. Why do you think that it's so hard to have these conversations when you're literally giving your children an allowance but you don't want to talk about money? What do you think is happening there?

Education.

I mean, a lot of the time the children may know even more about the money topics because let's face it, people of my generation, there's no resources to teach you about money. Who taught me about money? My grandmother, my parents, and they were very good with money. 

However, a lot of people aren't and they don't have that knowledge that's readily available.

So, interestingly enough, the research showed that even with digital payment tools available, most allowances are still given in cash. What do you think about digital versus cash, do you think that impacts the way people or these kids learn?

Absolutely. Because digital, they won't really respect money. 

Yeah, because it's just something that appeared on their phone versus you get the green stuff in their hands and eventually we're all going to have come to the realization there is no more green stuff to pass around.

Maybe not in my lifetime, maybe not in your lifetime, but certainly in our children's lifetimes. The reality is if you get green stuff in your hand, it's more meaningful. It sends a message.

Frankly, you don't want to give it up.

And you're going to spend that money more carefully than you would if it's on a card or on the back of your phone if you're just seeing a number because you're just seeing a number and you're signing away or swiping away.

So, make sure you pay it in cash and make a big deal of it. And every year increase it a little. I don't suggest that somebody pays $37 a month to a 10year-old or a week to a 10year-old.

Um that seems a little excessive, but certainly make it enough that they can still afford something and want and earn and maybe save up and actually maybe budget starting them into like saving systems, envelope systems.

Exactly. But the challenge that you have are parents aren't confident that their money knowledge is good enough to teach their children. So maybe make it a family event and do some research and talk about money. There's plenty of things on debt.com that they could read about. Absolutely. And teach those lessons. You don't have to sit there and talk about it for a half hour. It could be a 30- second conversation, but certainly train yourself to become an expert and pass that on to your children.

So, the survey also suggests that kids want to learn from their mistakes, but 65% of the parents find it hard to step back. How can parents give their guidance without helicopter parenting?

It's a great question, right?

Listen, everybody makes mistakes. Even I make mistakes with money sometimes.

I know I make a few a day, you know. And the reality is it's okay to make mistakes as long as you learn from those mistakes. And listen, the mistakes that a child is going to make are very small. So let them make those small mistakes and remember those lessons that are born from making mistakes. And certainly, you know, let your children fail. Let them fail because if they fail they'll learn and it's not going to be huge failures. You know what happens when a kid is only used to winning and then all of a sudden in their adulthood they fail and they will fail. Can they handle it? Is that going to hurt them psychologically?

Probably.

Yeah. So, for parents listening, what's your advice to make allowance more than just a handout? How do you turn it into a financial literacy tool?

Make them earn it.

They have to have tasks. Regardless of what age they are, they have to have tasks. Whether it's walking the dog, whether it's washing the dishes, whether it's doing laundry, making their bed, doing yard work, fixing things around the house, whatever it may be.

Let them feel like they earned it that money. Giving it to them is a handout and that is problematic.

Yes, I agree.

Thank you for your advice, Howard.

Thank you.

As the Wells Fargo study showed, most parents want to have better money conversations. They just don't always know where to start. So, here's your start. Talk about needs versus wants, saving for tomorrow, and yes, even what happens when money runs out. 

Thanks for joining us on Dvorkin on Debt. If you're overwhelmed by your own money challenges, especially in teaching the next generation, visit debt.com. You'll find tools and solutions because when life happens, debt.com is here to help.