Will Giving Your Kid an Allowance Make Them Better With Money?

Children who receive an allowance are much more likely to think they have a good understanding of basic financial topics, like budgeting, credit and student loans, than those who don't get allowance, according to the 2015 Parents, Kids & Money survey from investment management company T. Rowe Price.

The report draws on data from an online survey of 1,000 parents of children ages 8 to 14, and those children (881 of them). The margin of error for the results is plus or minus 3.1 percentage points.

The survey asked children to rate their understanding of various financial concepts and answer some yes-or-no questions, like whether they think they are smart about money. Among kids whose parents give them an allowance, 32% said they are very or extremely knowledgable about managing personal finances, compared to 16% among those who don't get allowance. On average, that gap between those who do and don't receive allowance was a 15-percentage-point difference in very or extremely knowledgeable children (in their personal opinions) when it comes to budgeting, credit, student loan debt, taxes, investing, Social Security, mortgages and inflation.

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The presence of an allowance doesn't seem as influential as whether or not a child's parents discuss money with them at all. Children whose parents frequently discuss finances with them are much more likely to feel like they are very or extremely knowledgable about financial topics. Among kids who talk about money with their parents, 46% feel they have a good understanding of managing personal finances, compared to 14% of those whose parents don't talk to them about money. With credit, that difference in confidence is nearly just as wide: 39% to 9%. Given the huge impact student loan debt is having on American consumers and, by extension, the economy, i t seems important that young people grasp this financial concept, but only 9% of kids whose parents don't talk to them about money say they really understand it. Kids with parents who talk to them about money are much more likely to say they get it: 39% said they're very or extremely knowledgable about student loan debt. It's all related, anyway: Student loans can have a big impact on your credit score, setting the tone for your financial life long after college is over. (Credit.com offers two free credit scores plus a breakdown of how your debts and other factors are affecting your credit, which can be helpful for your own information… as well as for teaching your kids about finances.)

The survey is a self-assessment, but it could indicate a significant difference in financial confidence between kids whose parents introduce them to the lifelong responsibility of managing one's money.

Beyond talking to kids about money, it helps when parents talk to each other about finances (this section of the results is based only on responses from married adults with children ages 8 to 14). They're not just having casual chats about the household budgets, either — kids whose parents argue about money were much more likely to say they understand things about personal finance than kids whose parents don't discuss or argue about money.

For parents wanting to raise financially informed children, it seems to come down to your own knowledge of and involvement with personal finance. The more you know, the more your kids will know — if you talk to them.

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Source: Will Giving Your Kid an Allowance Make Them Better With Money?