Making Allowances: Helping your child become a responsible money manager.

Money is burning a hole in my son's pocket. Yes, he just received his weekly allowance, and as soon as that cash hits his palm he is begging to go down to the neighborhood drugstore to buy something. The items he purchases make me cringe: one more set of baseball cards, to add to his already mammoth collection. Or perhaps another cap gun, soon to be stashed in the toy basket along with the others. airplanes, and yo-yos from weeks past. I feel angry and resentful putting money into his hands. On my worst days, I say to him, "Why don't you just take this money and flush it down the toilet?" He looks at me with bewilderment. After all, this is his money, right? And he has every right to spend it the way he sees fit, right? And the way he sees fit is to spend it NOW. Why save it when the pleasure of spending is right there in his little hand?

Then there is my daughter. I wouldn't be surprised if one day, while making her bed, I find a large wad of cash stuck in between the mattresses. To her, money is something to be saved, not spent. She proudly says to her brother,

"I've saved up $85. How about you? How much have YOU saved?" Her brother looks at her with a blank stare — what could possibly be the reason for saving when there are so many wonderful little things in the world to buy?

Something is clearly wrong here. On the one hand, I've got a compulsive spender in my house, one who views money as a route to get a quick easy "fix". On the other hand I've raised a compulsive saver, one who sees money as something to be held on to, no matter what. Neither option seems right to me. How will my son learn to save money for a car or a house when he grows up? How will he learn to say "no" when he sees that next new flashy gadget in the store window? And how will my daughter learn that money is meant to be spent, that in fact there is pleasure in spending? I imagine her being wracked with guilt as she grows up, knowing she just plunked down $100 for a suit she needs for a job interview. I imagine her sleepless nights as she contemplates all the money she just spent on that pleasurable vacation.

As in all things related to child rearing, I know that there must be a happy medium. There must be a way to teach kids healthy attitudes about money; how and when to spend it and how and when to save it. So I consulted the experts, the ones who wrote the books on teaching finance to kids. It seems that the answer begins in looking at our kids' allowance, that weekly sum of money we give (or forget to give) our kids each week. Here's what the experts have to say:

Kids should receive a regular weekly allowance.

In many ways, it is much easier for parents to dole out the money from their own wallets when their child needs (or begs for) something. But giving kids their own allowance, thereby requiring them to spend and save their own money, teaches them to be responsible money managers, an invaluable lifelong lesson. "In order to be transformed into responsible spenders, children need to be given opportunities to spend. They need to have chances to make wise and foolish decisions, and they need to be given those chances fairly often,” says David Owen, author of ‘The First National Bank of Dad: the Best Way to Teach Kids About Money’.

How much?

OK, so we need to give our children an allowance, but the obvious question is: How much? This can be a complicated decision, and every family has a different formula. Certainly the decision should be made based on the prosperity of the parents, the age and maturity of the child, and the financial responsibilities of the child. One author suggests paying a dollar amount equal to the age of the child. Another suggests giving half that

amount. Janet Bodnar, author of ‘Dollars & Sense for Kids: What They Need to Know About Money — and How to Tell Them’, tells us that we need to decide ahead of time what expenses the child's allowance will cover. A clear delineation must be made between what mom and dad will pay for, and what the child is responsible for. Having this discussion will help guide the amount of allowance your children will receive. When considering allowances, David Owen has this word of caution for parents:

"Children who receive harshly stingy allowances. have no reason to think long-term. They see no point in saving, or in comparing possible purchases, because they know that their incomes are too meager ever to accumulate into anything significant." In other words, allowance should be an amount that encourages both short-term spending and long-range savings for the "big ticket" items.

Set a consistent "pay day".

Set up a system where you are sure to pay the child at the same time on the same day. This avoids the constant "You never paid me last week!" whine

we so often hear. Paul W. Lermitte, author of ‘Making Allowances: a Dollars-and-Sense Guide to Teaching Kids about Money’, suggests keeping an "allowance tracker", a written record of the allowance you have given out to each child. Another writer keeps track of allowances on a computer program. Still another hands out "allowance coupons" at the time of payment, redeemable for cash. Finally, one expert uses a "checkbook" system in which she credits her kids' "accounts" with a monthly allowance; the kids write her a check as they need cash. Do what works for you, remembering consistency is the key.

Don't tie allowance to work.

All the experts agree: Doing chores around the house is a regular family obligation, and should not be tied to allowance. "An allowance is given to a child on a regular, consistent basis. In simple terms, a child should receive his allowance for simply being a member of the family, in order to instill good money management skills," says Paul Lermitte. On the other hand, parents may still choose to give extra payment for doing certain out-of-the-ordinary jobs, such as painting the fence or cleaning the garage.

Don't pay for good grades or good deeds.

"Buying grades, or any other good behavior, distracts kids from the sense of accomplishment that should be their real reward," says Janet Bodnar. Keep money and good works separate.

Encourage children to save.

Some of the experts suggest requiring the child to set aside a certain percentage of his/her income for savings. Others believe that savings should be voluntary. If children understand clearly that they are now responsible for purchasing that latest electronic gizmo, or the trendiest new fashion item, they will be forced to learn to save on their own. In either case, the money saved can be stored in a special jar or piggy bank; it is not necessary to put the savings into a bank. Bodnar tells us, "Among younger children, banks conjure up a place that takes your money but doesn't give it back, so savings is best begun at home, where kids can keep an eye on their money and watch it grow." If you do decide to have your children put their savings in a bank, let them know that this is their money, which is accessible to them, although you might want to have an agreed-upon minimum that must stay in the bank before they can make a withdrawal. If you don't put their savings in the bank, but would like to teach children about earning interest, consider providing a small amount of interest yourself, based on the amount of money and the length of time the child saves it.

Thanks to these money experts, I have a new financial plan. Each of my children will be paid consistently, fairly, and generously, and this payment will not be based upon chores or good grades. We'll discuss ahead of time the things for which they are now financially responsible. We'll purchase a special piggy bank for each of them so that they can start saving for more expensive items. My daughter will see that all the money she has been hording can be transformed into something she has always wanted, something that her parents have been unwilling to buy for her. My son will see that instead of spending the money as soon as he sees it, he might want to hold on to it for a bigger goal. And if he decides to throw his money away on yet another "piece of junk", his mother can stay relaxed. It is his money, after all. It's all part of learning to be a responsible money manager.

I feel better already.