Making Allowances for Kid's Mistakes - using allowances to teach children financial responsibility - Brief Article

Kiplinger's Personal Finance Magazine,  Feb, 1999  by Janet Bodnar,  Magali Rheault

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Let children learn from experience with their own spending money.

When it comes to money-management issues for children, few questions are more hotly debated than allowance: To give or not to give? Is it nobler to pay kids an outrageous fortune in exchange for doing household chores--or to trust that they'll pick up their clothes and toys without pay because they'll get into a sea of trouble if they don't?

A survey conducted for the Lutheran Brotherhood financial-management group illustrates the great divide: 44% of Americans do not give their kids an allowance. And on other issues where parents are more in sync, they may be on the wrong track: 68% restricted what their children could buy, and 91% believed parents should require kids to earn at least part of their allowance by doing chores.

No one-size-fits-all allowance system will work for every family. Some parents dole out money weekly, others monthly. Some hand it over in a lump sum, while others divvy it up into different pots for spending, saving, investing and giving. Based on my own experience and discussions with hundreds of parents over the years, I've concluded that you can make any system work as long as your kids know you're serious.

No matter what the system, however, the issues are the same:

* Should we give an allowance? There's no substitute for hands-on experience with managing money. Kids will spend unlimited amounts of cash as long as it's yours. Giving them a fixed income of their own is a check on their impulse to spend--as long as you don't make up any shortfall.

* Should we put limits on how our kids spend their money? Anything that's illegal, immoral or harmful is obviously off-limits. But don't be too quick to veto a purchase that's merely dumb. Children need to make their own mistakes.

* When should we start an allowance? In the Lutheran Brotherhood survey, men thought children should start receiving an allowance at age 9, while women would begin at age 8 1/2. You could start even earlier, at age 6 or 7, when children begin learning about money in school and can grasp the abstract idea of value. If you give them $2 a week, for example, they know it will buy four 50-cent games at the video arcade or half a movie ticket if you go to the early show.

For precocious preschoolers, stick with simpler strategies. When her son was a toddler, one mom we know started carrying a stash of his holiday gift money in her purse. When he asked for something at the store, they would dip into "Matthew's money" to pay for it.

* How much allowance should we give? Enough so that your children have money to squander, but not so much that you'll be upset when they do. For a 6-year-old, $1 a week is the bare minimum and $2 makes more sense. One rule of thumb: 50 cents a week for every year of a child's age.

That means a 6-year-old would get $3 a week--which is just about what 6- to 8-year-olds do get from their parents, on average, according to the Nickelodeon/Yankelovich Youth Monitor survey. That rises to $4.60 for kids 9 to 11 and $9.50 for 12- to 17-year-olds.

* Should the allowance be tied to chores? Like church and state, each is important, but they're best kept separate. Aside from the fact that children shouldn't be paid to pitch in around the house (and that kids who aren't motivated by money will simply ignore the work), chore-based systems are tough to administer. Parents tend to lose track of what kids have done but end up handing over the money anyway.

If you want to teach children the value of working for pay, it's much easier to pay them for extra jobs on an individual basis--babysitting, lawn mowing, car washing--that you can easily monitor and evaluate.

* If I don't make my children work for their money, isn't it a handout? Not if you make them work in other ways. An allowance should always come with strings attached, but they should be purse strings. When you hand over the money, hand over certain financial responsibilities as well. For 6-year-olds, that might mean paying for their own sports cards or stickers; for 10-year-olds, movie tickets and snack foods; for 16-year-olds, clothing. Then the kids have to work at budgeting their cash--which makes more sense for them and is more manageable for you.

Janet Bodnar, senior editors of this magazine, is also the author of Dr. Tightwad's Money-Smart Kids (Kiplinger/Times Business, $15; 800-280-7165). Send questions and comments to her at 1729 H St., N.W., Washington, DC 20006; or e-mail her at jbodnar@kiplinger.com

COPYRIGHT 1999 The Kiplinger Washington Editors, Inc.
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