Friday, July 14, 2000

Allowance can pay dividends

Children who get set weekly amount often learn to save, spend wisely

By Cindy Kranz
The Cincinnati Enquirer

        When the McBride brothers, ages 10 and 14, of Anderson Township get their weekly allowances, they watch part of it grow in their mutual fund. The younger Lower brothers of Wyoming invest their allowances in LEGOS.

        Allowances have long been considered an effective tool for teaching kids money management. It's even more crucial today that kids learn about money so they can avoid imitating their parents' debt-ridden lifestyles, financial experts say.

  • Whether you give an allowance or not, start talking to your children early about money. When you use your ATM or credit cards, make sure they understand that you're not getting something for free.
  • Expect your children will go crazy one day and spend all of their allowance. You have to let them make mistakes. You are allowed one nagging comment.
  • Have your children keep a wallet with a small amount of money in your car. They will always have money when shopping and won't ask you to purchase items or loan them money.
  • Give young children their allowance in their room, near their allowance container, so it doesn't get lost or misplaced before it reaches its destination.
  • Have your children keep their allowance in a see-through container so they can watch their money grow.
  Source: Jayne A. Pearl, author of Kids and Money.

        Learn more about allowances at these Web sites: offers Practical Money Skills for Life for parents, teachers and kids, written by Jayne A. Pearl, author of Kids and Money. Advice is tailored for three age groups: preschool-grade 2; grades 3-6; and grades 7-12.
  Larry Burkett, founder and CEO of Christian Financial Concepts, provides Money Matters for Kids at his Web site, Information is geared to kids, teens and parents.
  Articles at focus on allowances, money-management skills and money-making ideas for kids.
        “Kids need to learn to manage money early, especially when you read about the number of people who carry credit-card debt,” says Barb Fillion, an Evendale woman who holds money-management seminars with her husband. “Parents have a responsibility to teach kids about money. How are they going to do it if the kids don't have money?”

        Fewer than one out of two children receive allowances today, according to a 1998 survey by Zillions, a kids' consumer magazine. Forty-three percent of the 8 to 14 year olds polled got an allowance. Twenty-six percent got spending money, and 31 percent got no allowance or spending money.

        Allowances have been a staple of childhood for years, but parents still wrestle with the details of doling out them out. Don't worry what everyone else does, advises Jayne A. Pearl, author of Kids and Money (Bloomberg Press; $12.95). Do what works best for your family.

        In interviews with the Enquirer, experts and local parents answer the most-asked questions about allowances and talk about what works for them:

        Should I give an allowance?

        If you can afford it, do it.

        “Kids can learn to save only if they have money to save,” Ms. Pearl says. “They can learn to be smart shoppers only if they have money to spend. I think of an allowance as learning capital. They need to have money to be able to practice using it wisely.”

        Allowances have made smart shoppers out of 7-year-old Alex Lower and his 4-year-old brother, Zach. They receive their ages in dollars per week — $7 for Alex and $4 for Zach — with no strings attached.

        “The boys may spend their money however they see fit, which usually means LEGOS,” says their father, Wes Lower. “They are now price sensitive, or at least price aware, with regards to all consumer goods.”

        When should I start?

        Kids should be able to count and distinguish between coins before they get an allowance. That could be as early as age 4, Ms. Pearl says. The McBrides started giving allowances at age 5; the Lowers at ages 3-4.

        How much?

        The average weekly take for ages 8-14 is $5.82, according to kids' responses to the Zillions survey. However, there's no one-size fits all. Income, cost of living, family size and values all must be considered. Many parents give $1 for each year of their child's age.

        Ms. Pearl recommends a needs-based allowance: Carry a pad for a month and write down everything you buy for your child, ranging from school supplies to candy. Make some adjustments and set a reasonable amount. Put your child in charge of his own expenditures. He'll learn trade-offs and delayed gratification. Don't shell out additional money, or you'll undermine your efforts.

        Mrs. Fillion's family uses a needs-based allowance for their 16-year-old son, Jeff. Each person in the family has a budget for personal expenditures. When Jeff turned 14, they opened a checking account for him. He got a debit card, but no overdraft protection. Once a month, they transfer the amount in his budget needed for his expenses. “He is responsible for his expenditures,” Mrs. Fillion says. “What is transferred is not enough for him to do all that he wants to do.”

        Should I tie allowances to chores, behavior and grades?

        Lots of parents do, but experts remain divided. Some think kids shouldn't get a free ride. Attaching strings invites trouble, others say.

        “I don't like it because eventually you're likely to find you're setting your kids and yourself up for a big power struggle,” Ms. Pearl says. “When they say, "I don't want to feed the cat, so dock me,' then what happens?”

        The Fillions follow the advice of Larry Burkett, founder and CEO of Christian Financial Concepts. He recommends allowing kids to earn more money by doing additional jobs around the house. And so, their sons' allowances are not tied to chores, but both get paid for extra chores.

        Like the Fillions, the McBrides' stipends are not linked to regular household chores.

        “The allowances were based on household chores over and above being a citizen of the house,” Bill McBride says. “Money was withheld if the duties were not performed but behavior did not enter into it.”

        Should I require my kids to earmark money for long-term savings and charity?

        Some experts recommend kids divide the money into thirds: immediate spending, savings and charity. “I don't know too many parents who model that kind of spending behavior,” say Ms. Pearl, who disagrees with earmarking.

        Earmarking, though, has worked well for the McBrides. Ten-year-old Max still uses an envelope system: one for spending money, one for short-terms savings for items more expensive than the weekly stipend, and one for long-term savings, such as a car or college. The long-term envelope evolved into savings accounts, CDs and a mutual fund in kid-oriented companies, such as McDonald's. Charitable contributions are encouraged but not mandatory.

        All told, Max says having an allowance has taught him to save money. “I learn to use it and not waste it all.”



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