In this episode, Mak and G are looking at giving an allowance. How does it work as well as the ways they can help children learn about money and the value of work.
It’s an age-old question, should I give my children an allowance, and if so how much should I give them?
In this episode, Mak and G look at the benefits of giving your children an allowance, the different things kids can learn from having an allowance, and how taxes work…
“Taxes pay for a lot of things like schools, firemen, roads, and stuff we can’t pay for by ourselves. So I guess it’s good or we wouldn’t have anyone to teach or help us.” – Mak
00:27 – Why you should give your children an allowance.
01:11 – How many families give their children an allowance.
01:20 – How an allowance works.
03:10 – How much the average person in America earns.
04:00 – How taxes work.
05:00 – Some of the weird taxes we’ve had in the past.
05:35 – What taxes pay for and how taxes help people.
07:07 – How people receive their salary.
07:35 – The benefits of making your children do chores for their allowance.
Connect with Ben Jones:
MAK: Hi, I’m Mak.
GRANT: And I’m G.
BOTH: And you’re here for money with Mack and G.
MAK: The only show that teaches you about finance.
MAK: And accounting from a kid’s perspective.
GRANT: We are on a mission to demystify money to help you and your family be financially secure.
MAK: Welcome to Educounting, where my dad is passionate about financial education. Today’s video is on your allowance.
DAD: Starting an allowance in your home can be powerful for many reasons. Mak and G got really excited to have their own money which has begun several new discussions. If you attach the allowance to work, there’s the opportunity to understand the concept of work money plus, we enjoy the extra help. Once your son or daughter gets a taste of earning money, it’s time to discuss the basics of savings spending and budgeting, which will help carry them into their adult lives. Will you use the 5030 20 rule which is 50% for stuff they need 30% They can spend and 20% to save? And do you also add the component of donating money to charity? Giving an allowance is recommended by the American Institute of CPAs. Those are the accountants who have a good idea about money. A survey a couple of years ago says seven out of 10 families give an allowance. Hey, all of us accountants like the idea that people want to teach good money habits.
MAK: If you get an allowance, you get money on a regular basis for your parents. That’s called a salary.
DAD: Whenever I hear the word salary, it reminds me of my trip to Salzburg in Austria. That’s because the word salary comes from the Latin word solarium and is from the root SAO, which means salt. Roman soldiers were paid money in an amount so they could buy enough salt because it was so incredibly important. Okay, back to my sermon on Salzburg. It means salt fortress, because there is a huge salt mine nearby that has been worked on for over 7000 years. So Salzburg became a very rich place. Imagine life without ketchup.
DAD: No dough like ketchup, I’ll never eat fries again.
DAD: Well, salt was so important because it was used to make food taste better. It also helped make food last longer, so it wouldn’t spoil, in addition to being used for other important stuff.
MAK: An allowance is normally given every week, every two weeks or every month for your parents salaries exactly the same. I was told I get $5 every week for taking out the trash Biggie by bed and other chores.
DAD: And a recent survey parents use a general rule of setting a weekly allowance based on age. At seven, they may get $7 per week, and at eight they may get $8. I guess I’m a little cheap, but it tends to make sense. As they grow and get stronger, they should take on more responsibility at home which pays more and they’ll have more needs to pay for now Mak and G aren’t really fond of picking up Oreos poop. They may need some hazard pay for that. But we find other jobs which pay additional amounts too.
MAK: My parents are given a salary for what they do. They write reports on how the company is doing, like how much people bought books and how much they spent.
DAD: Every job is a little bit different. Most of us like to earn more, because we’ll have more we can use on everything in our life. About half the people in the US earn more than $57,000 and about half earn less than 57. Have you ever asked your parents about how much they make? It might be interesting to know, some kids think education isn’t important. However, if you don’t finish high school, the number goes down to around $28,000. That’s less than half of the midpoint. If you finish high school, the number goes to $37,000. And if you finish college, it goes up to over $66,000. I’m rich, I’m rich, judging.
MAK: My parents are told how much they make each year. So if you want to know how much they get each week, you have to use math.
GRANT: When you work for a company you have to pay taxes. My dad doesn’t like taxes at all. He makes a funny face whenever he hears the word.
DAD: Taxes can be really weird. When you buy something like clothes, you normally pay a sales tax. So if you buy a $20 sweater, you might pay an extra $60 and tax. Plus, if you own a home, you’re probably paying real estate tax. It’s usually based on the value of where you live. And the bigger and nicer your home is the more tax you pay. Taxes can be very complicated. If you’ve ever heard of Einstein, you know the super smart guy with wild white hair, who came up with the theory of relativity. He supposedly said Z taxes are the hardest thing to understand. Okay, a terrible impression, but you’ve probably all seen the Bible before, right? It’s really really thick. It has 700,000 words in it. However, the rules for our taxes in the United States have 3 million more words. than the Bible. And there have also been weird taxes to this passing, who was a Roman Emperor around 2000 years ago who had attacks on P. Yes, I said it p you heard me right. It was used to wash clothes and tan hides. Now, that is crazy.
MAK: If his salary is $52,000 a year, that is $1,000 a week because there are 52 weeks in a year, but with taxes, he only gets $800 a week.
DAD: Now, I just mentioned sales tax and real estate tax, but there is a tax on your salary, too. So yes, you don’t get to keep all $52,000. Everybody in the US pays the salary or what we call income tax. But some states have an extra income tax. And this tax depends on where you live. Texas, for instance, doesn’t have a salary or income tax, but Illinois does. So depending on where you live, it can be low, medium, or high.
MAK: Taxes pay for a lot of things like schools, firemen, roads and stuff we can’t pay for by ourselves. So I guess that is good. Or we wouldn’t have anyone to teach or help us.
DAD: Taxes do some amazing stuff. As you just heard, it helps protect us because it pays for police officers and firemen. Now a guy named Marcus lascivious Crassus had the first group of firemen in Rome nearly 2200 years ago, when a fire broke out, he would run to the fire with up to 500 of his own men. When he arrived, he would negotiate a price with the owner to put out the fire and Give me a high 585 95. Anybody has 95. And if they couldn’t agree, Marcus would let the building burn to the ground, then you would buy the destroyed million and land at a very small price. I guess it was the first known way to say it was a fire sale. I’m glad it doesn’t work like that now, but taxes, pave roads, pay the salaries of our politicians and pay for teachers. So you could say that your teacher is paid by your parents, Hey, Miss crab, Apple, my parents pay your salary.
MAK: My parents get money from their salaries sent directly to their bank. How crazy is that? We’ll talk about that more later.
DAD: Most people have a bank account, as we talked about in the company sends the money into their bank account, quick and easy. It all happens now through the internet. And for that matter, you can have your allowance put in your bank account to Okay kids, this part is for the parents and it might get a little boring, but make sure they listen. The facts vary, but it seems clear that over half of families are given allowance. Some believe it’s better to have their kids asked for money when the child needs something so they know exactly what they’re giving them money for, while others believe they need to work around the house without pay. Almost 60% of adults had an allowance when they were young and 90% say it was tied to chores. There’s something about working hard, helping out around the house and then earning money that allows your son or daughter the opportunity to make their own decisions, while learning healthy money habits in a safe environment. Just like most things, you have to enforce the rules or it leads to unwanted outcomes, stick to your guns. And if the work is not done, then there is no pay. Some data says given an allowance may not be as powerful as we think. However, there are many things that go into that equation. Starting early as best it appears some data believes it’s best to start before eight if you can. Many habits are said to be formed early in life, but it is never too late. And remember that it’s important to treat sons and daughters the same. I like the idea that some chores should be for free and aren’t part of an allowance, you aren’t able to stop these activities. If the child just doesn’t want to do them anymore, or doesn’t need the money. You can choose what that is in your household. Overall, there is some effort that we all have to put into in order to be part of and help in the family. Hey, there are costs for living in a house and they need to help. You may not use actual dollar bills because they’re turning into numbers on a screen with the growing number of apps that are out there. So don’t let the allowance go on autopilot. Check to make sure the work is done and take the opportunity to ask about how they will spend, save and donate the money. I found it fascinating that you can give your kids interest for money they don’t spend online. I love that one and do it with my kids with actual dollars and cents and incentivize them to save. They start making different decisions based upon whether they want to spend the money now, wait until the interest comes in or spend it later. You can do it digitally, even though we do it with actual money. Did you know there’s even an app where a parent can loan a child money and charge interest. Now that’s taking it up a notch. But what a great idea, and we’ll have to cover that at another time. And I find it very encouraging that one financial app for kids showed that about 40% of a child’s allowance is actually saved. Now. That’s great. And if it sticks, what a wonderful way to lead their lives. Allowance can be powerful, but you need to use it as a platform to discuss money and take it seriously. It’s a great time to talk about how much you make, you don’t have to give them the exact amount but explaining you earn more or less based upon your skills will get them to start thinking about better choices. In order to pick careers with stronger financial outcomes. You have a great opportunity to teach many different lessons here. Being a parent isn’t easy as I know, so Let’s all jump in and make it happen. That’s my quick two cents. Thanks for being here where it’s fun to talk about money and learn things on money with Mack and G and remember, start young and grow wealthy.
MAK: We hope you liked this episode. Now it’s time to grab your mom.
GRANT: Or grab your dad.
MAK: Because it’s now time for you to talk to your parents about what we’ve discussed. Join us for our next episode on paper or plastic number one. Thanks for joining us. If you haven’t yet, be sure to subscribe, rate and review this podcast.
GRANT: We want to help you succeed.
MAK: And if you have more insights on financial education, check out www.moneywithmakandg.com for lots of extra stuff which is growing all the time. Thanks for listening.