Kids Who Get Allowances Are Better Money Managers, Study Says

October 23, 2015
Jared Kaltwasser

Kids who get an allowance are twice as likely as kids who don't to say they understand how to manage personal finances, according to a survey from T. Rowe Price.

Kids who get an allowance are twice as likely as kids who don’t to say they understand how to manage personal finances, according to a survey from T. Rowe Price.

The survey looked at how parent-child conversations and teaching techniques can impact a child’s financial knowledge and outlook. Not surprisingly, having “the talk” — the money talk, that is — makes a major difference.

“It’s intuitive that talking to kids about money gives them financial knowledge,” said Judith Ward, CFP, a financial planner at T. Rowe Price. “But we were surprised to see the extent to which letting kids experience money may have an impact.”

Among children whose parents frequently discuss money with them, 46% self-reported being knowledgeable about managing money. Only 14% of children whose parents rarely discuss money said the same.

Talking about money proved beneficial even if it was just the parents — not the kids – having the discussion. When parents regularly discuss financial topics, 45% of children say they’re money-smart, versus 24% among children whose parents don’t regularly discuss finances.

However, Ward said the impact is even better when parents don’t just talk about money, but give their child her own money to manage.

“If parents talk about money but don’t let their kids experience it, it’s like telling them how to play the piano without letting them touch one and expecting that they’ll be able to play a sonata,” she said. “Conversations can guide experience, and experience can put those conversations into practice — the two work together.”

Among children receiving an allowance, 32% considered themselves knowledgeable about managing money, versus 16% among children not receiving an allowance. Those children are also more likely to say they feel smart about money, and to be knowledgeable about college savings. The survey found similar results among children whose parents allow them to make financial mistakes.

Ward said it’s good to let children get their financial feet wet, within limits.

“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,” she said.

The survey included 881 children ages 8-14. A copy is available here.

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