Allowance Xtra/Articles

Who's Teaching Kids About Money?

Ask any teenager about money. Observe the habits and values they have developed. While schools and parents focus on other priorities, advertisers are shaping kids’ attitudes towards money almost from birth.

Advertisers are the ones teaching kids how to spend, save and share. They invest hundreds of millions of dollars a year in television, radio, print, and Internet ads as well as in product placements and store displays. All these efforts are designed to influence the way kids look at money and how they handle it.

Obviously, any saving and sharing lessons are non-existent. It’s all about spending. The lessons are:

1. You can afford anything you desire.
2. There are many things you simply must have.
3. It’s your right and you deserve to have these things.
4. Money is for spending.
5. Credit is so you don’t have to wait.

What parents need is a simple program they can use to help their kids develop sound financial habits when it comes to spending, saving and sharing money. The only chance their children have to avoid financial problems as young adults is to develop good habits while they are growing up. So much of what kids do as adults is simply what they get in the habit of doing as children.

The key for kids to grow into financially responsible adults is to develop that financial responsibility while they are young. To do this, they must be given the opportunity to manage money. They must be given responsibility for at least a portion of their own expenditures and be able to learn from their own financial successes and mistakes. They must become stakeholders.

This may sound like a little much for a child and maybe even somewhat costly for parents. Really, just the opposite is the case. Right now, parents make most of their children’s spending decisions. If Jane or Johnny wants a toy, the parents decide if:

• It’s needed and appropriate
• The price is right
• The money is available

Fortunately, there’s a better way. In order to teach kids to manage money, they must learn to make these decisions themselves. They must be able to plan their own expenditures and shop for value as well as to save and share on a consistent basis.

Here’s a real-life example of how it works:

Jenna is given a weekly allowance to cover her incidental expenses, including soft drinks. After gymnastics’ class, she asks her Mom for a dollar to buy a soda. Her Mom reminds her that expense is included in her allowance. She responds, “You don’t think I’d spend a dollar of my own money on a soda, do you?” and settles for a drink from the water fountain.

1. Review the money you are giving your kids for purchases and make a list of those items
2. Give your kids the money and responsibility to make those purchases along with an agreed upon percentage of money to save and share
3. Encourage them to set saving and sharing goals and keep up with their spending
4. Monitor your child’s progress

A great resource for parents to implement this type of program is my book Allowance Magic: Turn Your Kids Into Money Wizards. It includes both a detailed guide for parents and a workbook for their kids. This book is available online through Amazon and through the Allowance Magic website. The website also includes much more information for both parents and children on this vital subject.

For younger children, there are also the Sammy Rabbit books and CDs to help them learn to “Save a dime from every dollar.” These entertaining and informative materials are available online through Kids’ Money Store.

Return to Contents

"Give 'Em An Allowance!"

How do our kids really learn to manage money? Most don't until they're adults and then they learn primarily as a result of their own successes and failures.

There's usually no course at school, no helpful hints on TV and observing parents can be confusing at best. Typically, parent's money management skills are often either not what we'd like them to be or our finances are so complex that how we handle our money doesn't mean much to a child.

To make matters worse, kids today have more money to spend and develop financial styles at a younger age than ever. Before you know it, kids can develop bad habits that can last a lifetime.

In fact, most parents don't deal with their kids' money management problems until their children are adults. By then, these problems can be both costly and emotionally charged. Young children provide parents the best opportunity to encourage good financial habits and avoid problems that will develop latter in life if this area is neglected.

The only way kids will learn to manage their money is through their own experience and the guidance you, as parents, may give them. In other words, kids learn from trial and error and role models just like the rest of us. And if they can't learn as children, the price of adult mistakes can be great in terms of money and relationships.

What Do I Do?
The first step, and the subject of this feature, is to Give 'em an allowance!
Here's why your kids need an allowance:

• Having a regular amount of their own income is the only way kids can learn to manage money.
• They need to be able to make mistakes when the cost is minimal.
• Knowing the limit of available funds forces kids:
  • To think about how much things costs, and
  • To make spending choices between the many things that they may want.
• They have more appreciation for the things they buy when they use their own money.

When Do I Start?
Once your child shows both an interest in and an understanding of the concept of money - the fact that it can be exchanged for goods - they are ready to start learning the basics of money management. For many kids, this may be as young as three or four. Their first allowance should be given at a minimum of once a week.

How much should I give?
Some would say a dollar for each year of age. Others would suggest you match the amount their friends get. Neither approach is really much help.

When coming up with the amount, try this:

• Determine how much money you already give them. If your kids don't get allowances, you are managing their money for them by deciding what they will buy and what they will do. Their role is salesperson and manipulator. Let them learn to manage their own money. Stop doing all the work. Total up the amount you are giving them now. Give that to them as an allowance and let them make their own decisions. You'll save money and avoid some of life's major battles.
• Make a list of what they are expected to pay for with their allowance. Once you have the amount, sit down with your child and make a list of everything they are expected to pay for. This solves the conflicts that may come up in stores and as they walk out the door to go to the movies. The total required becomes their allowance. As their needs change, so can the amount. Be open to reviewing it when appropriate.

Keep in mind the fact that kids have three uses for their money - spending, saving and sharing. Consider all three areas when you are coming up with the amount. In addition to setting the allowance, this process puts an end to the constant requests to buy this and that and to give them money to do whatever their hearts desire.

Should I Tie Allowances To Chores?
Do you believe your kids have a certain amount of responsibility around the house just because they are members of the family? If so, those responsibilities have nothing to do with allowances. In fact, if those responsibilities are not fulfilled, the loss of privileges would probably be more appropriate than the loss of allowances.

How can a child manage their money if they don't know how much they will be getting on a regular basis? On the other hand, if a child does not need their allowance that week, is it acceptable not to do the chores? And finally, do we want your children to ask "How much?" every time you ask them to do something around the house?

Remember, the purpose of an allowance is to give your children the opportunity to learn how to manage money through their own successes and failures and the input of their parents.

As you can see, we have just scratched the surface on this topic. Complete our surveys, visit other sites and let us know what you think. Tell your friends to come see us.

Return to Contents

Get Kids in the Habit of Saving Early, Not Late!

Sam X Renick is the author of two children financial books; has written and produced children’s music on the importance of saving money and is the founder of The It’s a Habit! Company, Inc., (www.itsahabit.com) a socially conscience publishing firm dedicated to sharing the importance of saving money and other life empowering skills. Sam is also a periodic contributor to the KNX 1070 Business Hour in Los Angeles.

If advertisers can successfully target children from birth with spending messages, then parents, grandparents and educators can and should be doing the same with saving messages. I hate to disagree with many education experts who feel fourth grade, or ages 9 and 10, is an appropriate time to begin discussing money management with kids, but it is just too big of a head start to give corporations and businesses who are increasingly targeting this growing market.

Traditional thinking ignores the fact that today children begin establishing habits and a relationship with money around the age of four. Let’s face it, ninety nine percent of that relationship has to do with spending and in all likelihood is the beginning of a lifetime of poor money habits.

Although personal finance authors may disagree on a variety of issues, one they all seem to agree on is that when you earn or receive money, the first thing you should do with it is put some away or pay yourself first. Can you imagine the impact on a child’s life and their parents, if they are taught this time tested principle from an early age? Isn’t it easy to picture educated, hard working, self sufficient, independent adults who own homes and businesses?
I know one of the great regrets of many adults is that they weren’t taught about saving as a child. In fact, it’s the main reason I started writing children’s financial books and music. Establishing good habits are essential to developing a healthy relationship with money. So how do parents, grandparents and educators help young children get in the habit of saving? Here are some suggestions:

1. Improve our own understanding of personal finance. Believe it or not, many adults don’t understand the basics of personal finance or money. No matter how well intended, nothing can be more harmful and consequential for children than providing them with information that isn’t correct. There is no shortage of myths when it comes to money, like it is good to get a large tax refund. So pick up a book on personal finance and get your family’s finances in order. There are several excellent books on the market. Find one that speaks to you. A few of my favorites are: The Way to Wealth, Benjamin Franklin (he’s pictured on the $100 bill for a reason); The Money Diet, Ginger Applegarth; Rich Dad, Poor Dad, Robert Kiyosaki, The Million Next Door; Dr. Thomas Stanley and Money Doesn’t Grow On Trees, Neale Godfrey. Nothing will provide better results for children than setting a good, consistent example for them to follow.

2. Communicate, communicate, communicate. Talk to your kids about money. Not talking to kids about money is one of the biggest mistakes parents make.

3. Books and music. Two activities that can begin from birth are reading to children and exposing them to music. Both may help to cultivate an interest in and create an awareness of money. Naturally, I strongly recommend It’s a Habit, Sammy Rabbit!, Will Sammy Ride the World’s First Space Coaster? and Get in the Habit! the two books and music CD that my company has published (www.itsahabit.com). Additionally, I suggest: Lucky the Golden Goose by John Wren; Alexander, Who Used to be Rich Last Sunday by Judith Viorst; Tops and Bottoms by Janet Stevens; The Giving Tree by Shel Silverstein; and The Trouble with Money by Jan Berenstain.

4. Coloring sheets and books. Visit your local credit union or bank and ask them if they have any coloring sheets and coloring books for kids. Many do, particularly credit unions.

5. Separate and count coins.

6. Piggy banks and saving jars. Get your child a piggy bank, or better yet create your own. If you are going to purchase one, my favorite is The Money Savvy Pig TM (www.msgen.com). I prefer this bank to most for two reasons: (1) It’s transparent. Seeing your money grow is a tremendous motivator for kids to continue to save; and (2) Contrary to the current trend of dividing banks into three compartments, it’s divided into four: save, invest, spend and donate. But better than purchasing one is to create and personalize your own.

7. Board games and cash registers. Monopoly (Junior), Moneywise Kids, Payday and Scan N Count Cash Register by KIDdesigns, Inc. are few good choices.

8. Wealth/goal journal and affirmations. Have your child create his or her own wealth journal. In the journal identify goals and draw or clip pictures of those goals. Divide goals in to short, mid and long term. Encourage your child to write about why the goals are meaningful to them. Create short, fun, repeatable slogans for your kids like: saving makes me strong; from every dollar, save a dime; change adds up; and money likes to grow and grow.

9. Read the Sunday paper and clip coupons. You might let your child share in the savings you get by using coupons. After all, who doesn’t like receiving a bonus or reward.

10. Recycle.

11. Lists and shopping. Lists are a great planning, thinking and organizing tools. Make kids a part of any shopping expedition. Always start by writing a list and establishing a target budget before going to the store. Allow kids to comparison shop for items. Point out the difference in pricing between generic and name brands.

12. Allowance. Be consistent. Check out Allowance Magic, by David McCurrach (www.allowancemagic.com).

13. Start an account. Take your child to the bank or credit union on a regular basis. Review banking and investment statements with your kids.

14. Purchase shares of stock or a mutual fund. Purchase a share or shares of stock of some of your child’s favorite products. You can purchase stocks inexpensively at Sharebuilder (www.sharebuilder.com). Vanguard (www.vanguard.com) is a good source for mutual funds.

In summary, the key components to raising money smart kids are: setting a good example they can follow; communicating regularly with them; involving them in engaging money related activities; and getting them in the habit of saving early not late!

Return to Contents

Parents See Allowances As An Educational Tool

In doing research for The Kids’ Allowance Book (Walker & Co., 1998), I questioned more than 160 kids from around the country, as well as several of their parents to learn how allowances worked in their families. The youngsters report that they see an allowance as not just a great way to get spending money, but also as a way to learn how to manage money wisely. As one girl notes in the book, “My allowance helps me realize I need to be careful and not blow my money.”

For the parents I spoke with, the educational aspect of having an allowance rates high as the main reason they decided to give their children an allowance. Here are some comments parents made as to why they had started allowances in their family:

• “We decided to give her an allowance so she would learn responsibility and that you have to work for what you want.”
• “I hoped it would give her a sense of independence and teach her a bit of fiscal responsibility.”
• “To encourage decision-making on how to spend money. To learn how to save for things he wants.”

How these families have gone about organizing their kids’ allowance plans differs a lot. Some tie the allowance to chores; others don’t. Some pay once a week; others use a monthly payday. No matter what type of set up they use, many of these families admit to having occasional bouts of allowance breakdown. Allowances generally start out with the best of intentions on everyone’s part, but then for various reasons the allowance may bog down. Parents may forget to pay on time, kids may forget to do their chores, or everyone may lose track of whether or not the allowance actually got paid, leading to endless did-we-or-did-we-not-give-the-allowance-this-week debates. About one out of every four of the kids interviewed for the book has experienced allowance breakdown at one time or another, leading to new arrangements having to be worked out with parents to get the allowance rolling along again.

The Kids’ Allowance Book (written for kids age 8 to 14) presents the fix-it-up solutions these kids and parents have come up with, along with descriptions of the variety of ways different families set up allowance plans for children. There doesn’t seem to be any one exclusive “right” way to do it that would work well for all situations. The kids and parents that I questioned for this book report having good results with a wide range of options.

The key to allowance success seems to depend on a willingness to talk over allowance problems as they pop up, and a flexibility in scouting out ways to solve those problems so the allowance can stay on track. The various kid-tested plans and trouble-shooting strategies described in The Kids’ Allowance Book can help kids and families keep an allowance going, so youngsters can have an opportunity to make good use of this valuable educational tool and learn important money-management skills that can last a lifetime.

© Amy Nathan, 1999

Return to Contents

Money Management Starts with Allowance

WHAT IS IT with parents? They buy us a pack of gum here or a chocolate bar there, they pay for the gotta have them $100 new jeans and a trip up the ski hill and then when we turn 18, about the same time most of us leave home, they slam the wallet shut and tell us it's time for us to learn how to manage our own money. Money management starts with money, your own money, and even a preschooler can start to learn that a penny saved is a penny earned.

Sometime early in life, usually around the age of three, a kid discovers money. They figure out they need the shiny stuff in mom's purse if they are to get their paws on that special toy they just saw advertised during Sesame Street. They know that money has rewards, it has power but what they don't know is how much value it has. Most kids figure that if they beg long enough, no matter what the cost, sooner or later mom and dad will come through with the goods.

That's where the problem is. Most kids are never taught the skill of money management until it's too late. Sometimes they get a few bucks for a birthday or Christmas gift but most kids don't get a regular salary from their folks. First hand experience is vital to learning smart money management skills and without the money, there is no experience.

This is how an allowance fits in. Financial Advisor David McCurrach who has started up a Web page called Kids' Money says a survey of parents shows that about 60% give their kids an allowance. "It's shocking because the only way kids learn about money management is by their own successes and failures, and you have to have money to do this."

Linda Barbanel, author of Piggy bank to Credit Card believes that as soon as your kids are old enough to ask for something in the grocery store it's time to start up with an allowance. "Whenever a child says 'gimme' you know he is ready to be taught to save."

Estimate how much you are already spending fulfilling requests to buy this or that each week and then set that amount as their allowance advises McCurrach. One formula is to give the child a dollar a week for each year of age however a four year old could start quite nicely with two dollars a week.

It is critical that you sit down with them first and tell them exactly what they are expected to pay for from their allowance. You can't tell them what to buy but you can say their allowance is to be used in three areas:

Sharing - Church or charitable donations, birthday presents for family or friends.

Spending - Toys, candy, specialty clothing items and entertainment.

Saving - 10-20% of allowance needs to be put away to save for something they want that costs more than the weekly allowance.

John Messervey from the National Family Business Council suggests using a journal to keep track of exactly where the allowance is going. "Once a week write in dates and amounts and show the child how and where they spent their money, how much is left and how much they have in savings. Messervey points to several banks who offer "kids accounts" where as little as a dollar can be deposited without monthly fees and the child receives a bank book where they can keep account of their savings.

Many parents are prone to tie an allowance to weekly chores, but it is a mistake. "We tried that" says McCurrach "it was a disaster. If the child doesn't need the money they get into trade-offs like they won't clean the bathroom because it is not worth the two bucks." Besides, it is impossible to learn how to manage money without a regular income and if one week there is no money it blows the consistency.

Paying for "extra chores" is quite all right especially if the child is after a high-ticket item. Just make sure that the chores are above what is usually expected of them and that the money earned goes directly into saving for that particular purchase. The lesson is "I can work harder for the special things I want."

Remember, the reason you are giving your kid an allowance is to teach them the value of money and to set the foundations which will carry them through their adult years. Sure, you could just give them the hard cash if you can afford it, but having saved for something themselves they have learned patience, discipline and hopefully money smarts that will last them a lifetime.

Take a look at Kids' Money for regular stories dealing with kids and finance.

Return to Contents

Liberty Financial's Young Investor Parent's Guide On Allowances

"We cannot always build the future for our youth, but we can build our youth for the future." Franklin Delano Roosevelt

For generations parents have been doling out allowances to their children. Every family has a different system. Some children are required to perform household chores in exchange for a weekly stipend, others demand nothing extraordinary. Many compensate children separately for performing certain household chores.

Many psychologists and parents agree that children can manage their money relatively free of parental coercion. Most also agree that money shouldn't be used to change behavior. Punishing children by taking away money they're owed or giving them extra money because they've been "good" sends all the wrong money signals to your children.

Designing a Program That's Right For You
Deciding when and how your child should begin receiving an allowance or performing household chores for extra money takes careful thought and planning. You may want to regard both as business deals between you and your child. Some people think that depersonalizing the process upfront reduces the chances for family squabbles later on.

If you don't believe in "allowances" don't feel compelled to pay just because your children want them. But, be sure to provide them opportunities to earn extra money and learn how to manage the money they earn or get from you.

Every family is different. You shouldn't feel guilty if your plans are less generous or more generous than your neighbor's. Even though the rules for allowances and earning extra cash differ from household to household, there are some basic guidelines that all parents can follow. Here are several useful points to help you design reasonable and responsive programs.

Allowances

1. It's never too early to start.
If you've hesitated because you don't think your child is old enough to handle money, keep in mind that recent studies have shown that most 3 year-olds are ready and eager to learn about money and how things are bought and sold. By the time they're 5, many already have started to save.

2. Establish who gets what.
Develop a consistent system that pays more to older children. But keep it flexible until you hit on the right formula. In general, your plan should be more generous with older children because their needs tend to be greater. Many parents seem to favor a plan that increases at the start of each new school year. It's a good idea to present your proposed plan in written form and seek input from all members of the family. Then, make adjustments accordingly.

3. Describe the rules.
Each child should understand why she is receiving an allowance and what expenditures it's supposed to cover. If you've decided to pay an allowance to your children because they are members of the family tell them so. But also remind them of the general responsibilities they have as members of the family. If the allowance is tied to household chores, describe those assignments in detail.

4. Pay on time.
Paying on schedule will subtly teach your children the value of honoring one's obligations.

5. Allowance is not a control device.
Unless the allowance is tied to specific work assignments, you should avoid threatening the withhold payments. If the allowance is related to work, from the beginning of the program be sure to indicate in writing that the allowance may be withheld if the related jobs aren't completed.

6. Develop accountability.
Some parents require their child to account for how the money was used. This kind of activity can prepare a child to handle larger sums and manage a checkbook. As a rule, you should avoid questioning the purchasing decisions of the child. However, you many want to offer helpful advice on how the money can be spent more productively.

Return to Contents

How to Raise Money-Smart Kids

• When is a child old enough to receive an allowance?
• When is a youngster old enough to save money regularly?
• Should you pay an allowance only when chores are done?
• Should you use an allowance to coerce good behavior?
• Should chores bring extra pay?

Kids and money is a hot topic. In fact, school districts are scrambling to add financial education to their curriculums. But the best place for kids to learn about money is the same as it's always been: at home.

MONEY IS A DIFFICULT, OFTEN TOUCHY, SUBJECT. Add kids to the equation and most people blanch. And because no two kids are alike in their attitudes toward money and many parents even disagree about finances, teaching children how to manage money turns into an emotional debate that most parents would rather avoid. Unfortunately, this avoidance can leave kids without the solid foundation they need.

Denise Chouinard of Watertown, Conn., is the mother of a 14-year-old daughter and 11- year-old twin boys. Her family is typical when it comes to the issue of money--they all differ in their opinions and attitudes: "My husband and I disagree about allowances. He says the kids shouldn't be paid to do chores. But I think chores are an incentive. Anyway, not even the twins are alike when it comes to money. Joshua expects to be paid for everything he does, but he can't save. He spends it in bits and pieces as fast as he gets it. But Jason's a saver--very conservative. He saved up $50 for his Nike shoes recently. Erica is good, too. She's now baby-sitting regularly. She hates it, but she likes the money. She's paid for some of her clothes and bought some gifts for friends on our family vacation out of her savings."

But regardless of these differences, the Chouinard family is ahead of most--the kids are already earning their own money and taking on some financial responsibility. Unfortunately, most kids lack a clear concept of how to manage money. And, in most cases, it's because no one has taken the time to teach them. The Joint Council on Economic Education examined youngsters' understanding of monetary concepts and found that kids, as a group, are appallingly ignorant. A heavy majority of high-school students, the Council observed, "couldn't define profit." Yet, a New York retail consulting firm predicts that teen-agers between the ages of 13 and 17 will spend $89 billion this year, with $34 billion of that amount coming from allowances. It seems clear that the only lesson most kids have learned about money is how to spend it.

What accounts for this lack of education in our society? "The money scene in many households is horrendous," says Anne Ziff, a family therapist in Westport, Conn. "What should be cool, calm communication becomes complex emotional anxiety and also a source of manipulation. Parents are often at opposite poles, and children get mixed messages instead of good financial experience." The result? In order to avoid the emotional strain, most of us duck the chance to teach our kids how to manage money.

Yet the lessons we dread are simple. For kids, money management can be divided into four basic principles: earning, spending, saving, and borrowing. The key to teaching kids is to start early using clear, practical examples. And, as your kids grow, so should the lessons and responsibilities.

Beginning of Article
Earning Money. Anybody old enough to spend money should get an allowance from the family funds. Probably by kindergarten, certainly by first grade.

Why give an allowance? For one big reason: To help your youngsters learn how to manage money. An allowance is not to relieve you of paying for some of your children's wants or needs. It is the best and most hands-on method of teaching your children how to spend and save. By using their own funds, their limit becomes real and tangible to them- -they only get a certain amount each week, rather than having your seemingly infinite wallet--and it will quickly become obvious that they can't have everything they want.

One of the biggest misconceptions about an allowance is that some parents cannot afford to give their children "extra" money. However, if you look at an allowance from a different angle, every parent can afford it. An "allowance" is basically money that you're going to spend on your child anyway, just given in a different form. Instead of paying for things at the time your children want them, you pay them an allowance and let them decide how to spend the money. The ultimate goal of an allowance is to teach children to distinguish between needs and wants and to prioritize and save--a difficult lesson that will be needed throughout life. You can look at an allowance in three ways:

1. Hands Off. Take it from Grace W. Weinstein, columnist for Investors' Business Daily and author of Children and Money: A Parent's Guide: "An allowance is the single best learning tool. Kids need to handle it themselves, making their own mistakes." Once you've given an allowance, walk away from it. The money is no longer yours, therefore you no longer control it. It is now up to your child to decide how it should be spent or saved.

Beginning of Article
2. Chores for Pay. Many parents believe that their kids should complete chores in order to receive their allowances--they don't want their youngsters to view an allowance as an entitlement. However, experts like Ziff don't buy that. "Children should understand that doing chores is part of membership in a family. In healthy families, all members contribute and all contributions are valued," she explains. "The grownups don't get paid for doing family chores--why should the kids? And a share of the family income is an entitlement, just as food, clothing, and shelter are entitlements to any family member."

Beginning of Article
3. Compromise: Hands Off/Chores. With this approach you give children a basic allowance, but attach no responsibility for household chores. Instead, make sure you provide regular employment that will allow your kids to earn additional money: raking leaves, washing windows, mowing the lawn, washing the car, or doing heavy-duty cleaning in the cellar or garage. Musicians Valerie and James Denn of Wimberley, Texas, use this approach for 8-year-old Taylor. "He can use his allowance as he wants," says his mother, "and he earns money selling our tapes and CDs at gigs. By the time he was 6, he could make change, and he gets to keep 10 percent of what he sells. He's quite a salesman." The 8-year-old's understanding of monetary value is demonstrated by his skill at finding Game Boy games, which retail at about $30, in a local pawn shop for $10.

Only you can decide which approach--hands-off, chores for pay, or compromise-is the best for your children and your family. But whatever you decide, it is important to remain consistent.

How Much Allowance? To decide this, put several factors together: your children's age, how much their friends are getting, where you live--kids in Iowa enjoy a lower cost of living than kids in Connecticut--and how much of the total amount that you spend on your children you want them to start taking responsibility for. Talk with your friends who have children the same age, put the factors together, and experiment. You can always make adjustments later. You don't want your kids to be frustrated by too little or overwhelmed by too much.

Spending Plan. Should you have your kids make a budget? No. Instead, avoid that hated b-word and begin a spending plan. Help your children put a spending plan into effect the day their allowance starts. Make it clear that we all must be constantly aware of where our money comes from and where it goes. As you set up the plan, use your own list of expenses as an example--specially the ordinary items, such as groceries, gasoline, video rentals, birthday presents, laundry, and cleaning. Explain how some goods and services are needed and unavoidable and cost close to the same amount each time--gasoline, food, and shelter. Then explain how other goods are simply wanted and their costs can vary--a clever but inexpensive birthday gift instead of a more costly item, or a video once a week rather than three times a week.

Talk these expenses through with your children to decide what kind of spending they can be comfortably responsible for as you begin paying an allowance. But, as you assist your children in making a plan, it's important to remember not to dictate what they should do with an allowance. Instead, allow your children to tell you how the money will be spent-- even if, as 8-year-old Taylor's mother says, "Sometimes I have to bite my tongue."

Write It All Down. When constructing the spending plan, be sure to list everything your children are to be responsible for--in order to avoid confusion. School lunches? After-school snacks? Video rentals? Movies? Also, build in flexibility by adding a little cushion for what you didn't think of and for surprises--an unexpected birthday--party invitation, or a slumber party with the kids chipping in for pizzas. The cushion is valuable because surprises are inevitable, and it helps kids learn about choices. And, don't forget savings. Help your children decide on a sensible .amount to save each week--at least 10 percent of their allowance or total income.

Finally, encourage your children to donate some part of their allowance to charity or a good cause on a regular or occasional basis. Learning that money can do good things for other people is a useful lifetime lesson.

As your kids get older, their allowance and responsibilities should increase to prepare them for independence. When helping your older kids draft a spending plan, include some bigger-ticket items: clothing (maybe start with only one category, such as shoes or accessories), sports equipment, film and processing, or vacation spending money. You'll be surprised by the amount of responsibility your pre-teens can build into a spending plan. And mistakes? While it's certain that they'll make a few, it's also certain that they'll learn from them. And it's better to make small mistakes now than larger ones later. This is part of the reason for a weekly allowance.

Beginning of Article
Make Savings Visible. Imagine the your very young child, say a 4- or 5-year-old, wants a particular toy. Rather than saying no, explain that "we're going to save for it." Cut out a picture of the item or draw one--even if you can't draw a straight line--and tape the picture to a jar. For a week or so, let your child put your loose change in the jar. When there's enough (you may want to add some folding money, if needed to speed up the process), let your child take the jar--literally--to the store to buy the toy. This is a practical lesson that will help children learn at an early age the importance of saving money. Then, as soon as the allowance begins, build a savings plan into the spending plan. Because your child has already experienced saving and its reward, a savings plan will not only be easier to include once his or her allowance starts coming, it will also make sense to the child.

What About Borrowing? Sometimes the built-in cushion or the savings won't be enough, and Taylor or the twins will ask you for an advance on next week's allowance. Whether or not you should give an advance is a controversial subject. Beverly E. Tuttle, president of Consumer Credit Counseling Service of Connecticut, says, "It just invites the attitude that has made America a debt society: Buy now, pay later. It runs counter to the notion of planning." On the other hand, life is unpredictable and you can't plan or save for everything. By giving an advance you can help teach your child about borrowing and interest.

If you do opt to allow your children to borrow money, you must make it a learning experience. For the very young, introduce the "visible IOU"--a glass jar in plain sight, marked IOU. He or she pays back the advance to the jar. Put the IOU jar beside the savings jar, so each time your child makes a payment, he or she is aware that the savings won't increase until the borrowed money is returned. And, charge interest. Maybe only pennies, but the borrower will get the idea--one pays a fee for borrowing money.

Balance Saving and Spending. Encourage saving, sure. But work it through the spending plan so your kids will realize that all saving is postponed spending. And knowing how to handle money means knowing when to hold onto it and when to spend it usefully.

Certified financial planner Elizabeth Lewin and Bernard Ryan Jr. are co-authors of Simple Ways to Help Your Kids Become Dollar- Smart (Walker).

DOLLAR-SENSE TIPS

• Use specifics to make your point. Next the you're buying gas, point out the continually running meter as the tank fills. And, for example, when your first-grader is learning numbers, explain the process: "Remember last Saturday? It took 11 gallons and cost us $15.18. And then remember how we cut out some of those trips downtown this week? Because we drove less, it took only eight gallons when we filled the tank, and we saved more than $4." if your son or daughter actually participated in reducing your driving time over, say, a week, put some of the $4 you saved into his or her piggy bank.
• Analyze allowance vs. chores. If you would normally pay an outsider for raking leaves or mowing the lawn, pay your child for doing the job instead. But don't set up dishwashing, bed-making, or taking out the garbage as tasks an allowance pays for. These should be part of the normal household responsibilities.
• Don't miss a payday. Make the allowance as dependable as you expect your own paycheck to be--a regular amount on the same day each week. Never delay or miss a payment.
  Beginning of Article
• Don't use allowance to correct behavior. If you need to hand out a punishment, never dock or withhold an allowance. That confuses both discipline and money-handling.
• Help your child evaluate wants and needs. Make sure your children understand, even on the simplest terms, that some of the allowance is for things they need, just as some is for wants. For example, steer your 7-year-old into the habit of regularly buying his or her own toothpaste. Though a minor diversion of money from household spending to the child's allowance, it helps establish the basis for a lifelong understanding of managing money to achieve a sound balance of needs and wants.
• Remember, time is long when you're young. If you're giving an advance on an allowance, don't stretch the repayment time. Two or three weeks is forever when you're 8 or 9. Also remember that the younger the child is, the shorter the time should be between starting to save and actually making the purchase--for preschoolers, just a few days. But for older kids wanting more expensive items, saving can stretch out longer.
  

FOR FURTHER READING...

Kids and Money: A Learning Guide for Children, Fidelity Investments. This kit, available free by calling 800/544-888, supplies you with activity sheets for the kids and information on basic concepts; for preschool and up.

The Totally Awesome Money Book for Kids, by Adriane G. Berg; Newmarket Press; $10.95; 800/733-3000.

A Penny Saved: Using Money to Teach Your Child the Way the World Works, by Neale S. Godfrey; Simon and Schuster; $18.95; 800/223-2348.

Simple Ways to Help Your Kids Become Dollar-Smart, by Elizabeth Lewin, C.F.P., and Bernard Ryan Jr.; Walker Publishing Co. Inc.; $8.95; 800/289-2553.

Lifetime Book of Money Management, by Grace W. Weinstein; Visible Ink Press; $15.95; 800/776-6265.

Return to Contents