In its study, the investment giant comes across with a clear and compelling message of their own for parents - kids who get an allowance are more money savvy than those who do not.
According to the research, parents who give their kids an allowance are more likely to have kids who:
- Say they are knowledgeable about managing personal finances (32% vs. 16%).
- Feel they are smart about money (40% vs. 25%).
- Think their parents are doing a good job teaching them about finances (52% vs. 31%).
"It's intuitive that talking to kids about money gives them financial knowledge," says Judith Ward, a senior financial planner at T. Rowe Price. "But we were surprised to see the extent to which letting kids experience money may have an impact. While giving kids an allowance is one way to let them experience money, parents can also consider opening up a savings account for them or letting them use a debit or credit card, with some guardrails of course."
The key to instilling financial intelligence in kids, however, is in the parent's definition of allowance, some experts say. "Each time a parent is paying for something on behalf of their child, they can be using the opportunity to teach the child how to manage money," says Tracie Shroyer, co-founder of AllowanceAcademy.com, an online service dedicated to making kids financially savvy. "We started by giving our kids an allowance for school lunch when they were young. We didn't give them enough to pay for lunch every day, but instead made sure they would need to pick and choose the days they wanted to bring lunch from home. Lunches they packed at home were free. Money in their 'food' budget that wasn't spent on lunches could be used elsewhere."
Shroyer, who is the mother of three teenagers, says the best allowance experiences occur when parents look at the process in new ways. "An allowance is not free money -- it is a teaching tool that allows kids to practice a necessary skill in the same way they practice an instrument or for a sport team," Shroyer adds. "Kids who are able to participate in family finances in this way tend to be more responsible with their things, more appreciative and more understanding of basic financial principles."
Sarah Titus, a stay-at-home mom and former banking industry professional, takes her kids' allowance situation personally. "Because of my background, teaching kids about money is extremely important to me," she says. "I used to be in debt and owed $30,000, but now I'm debt free. I don't want my children to get into debt, so I teach them from a very young age how to avoid owing money."
The best way to teach children how to spend wisely is to begin giving them an allowance early on in their lives. "That helps them practice the skills they will use when they get older," Titus says. "My nine-year-old earns money every day from me. The first thing I have her do is set aside 25% for savings, another 25% goes toward church and helping others, and the other 50% she can keep and spend however she likes."
"Teaching her to skim off 50% right away before spending is crucial and makes it very easy to calculate," she adds.
Parents also seem big on the theme of linking chores with an allowance. "I am both a financial planner and parent of four kids between the ages of nine and 18," says Steven A. Boorstein, a certified financial planner at RockCrest Financial LLC, in Franklinville, N.J. "My thinking is that if your child does something for the family that you would otherwise pay for, then pay them. For example, if my sons didn't cut the lawn, I'd have to pay for it. Landscapers in the area charge $35 per cut, so each time my kids cut the lawn, I pay them $30."
"But if your child does something that is expected of each family member, then don't pay them," Boorstein adds. "My kids don't get paid for helping to clear up the table after dinner or keeping their rooms neat. That's expected of all family members."
Parents and experts alike seem to have myriad ways of handling allowances. No matter what, though, kids who get an allowance can use the experience to learn about money, and that makes them better financial consumers, in the short- and long-term.