Making Allowances for Your Kids' Dollar Values
Would you stoop to pick up a found penny? If you believe in the value of money or the possibility of luck, you would. Unless, of course, you're a teenager.
When Nuveen Investments asked 1,000 kids ages 12 to 17 to name the sum they would bother to pick up, 58 percent said a dollar or more. Some won't give pocket space to coins even if they're already in hand, says Neale Godfrey, author of Money Doesn't Grow on Trees. Many high schoolers buy lunch and throw away the change, she says. As one boy explained to her, "What am I going to do with it?"
This cavalier attitude is making some parents rethink the allowance tradition. The weekly stipend is meant to help kids learn about money, but some experts say too much cash--easily handed out in these flush times--and too few obligations can lead to a fiscally irresponsible future. Many kids have a " lack of understanding [of] how hard it is to earn money," says Godfrey. "That is not OK."
Allowances, done right, are a way to teach children to plan ahead and choose wisely, to balance saving, spending, investing, and even philanthropy. Doing it right means deciding ahead of time how much to give and how often to give it. And it requires determining what the child's responsibilities will be.
About 50 percent of children between 12 and 18 get an allowance or cash from their parents, says a survey conducted in 1997 by Ohio State University for the U.S. Labor Department. The median amount they got was $50 a week. (Teenagers in the East North Central region, which includes Ohio and Indiana, get the most--a median of $75 a week--and kids in the East South Central, including Mississippi and Alabama, are given the least, with a median of $30 a week.) Nationally speaking, about 10 million kids receive a total of around $1 billion every week.
No free lunch. The problem with a parental open-wallet policy, says Godfrey: "If you're always given money, why would it have any value to you?" Earned money is spent more wisely, she says. "You're teaching them that there is not an entitlement program in life. The way you get it is you earn it."
Godfrey thinks an allowance should be chore-based, and she divides work into two categories: citizen-of-the-household chores and work-for-pay chores. "The punishment for not doing your work-for-pay chores is you don't get paid." Other experts, including Jayne Pearl, author of Kids and Money, believe that every family member is entitled to a small piece of the financial pie and that it shouldn't be tied to work. Doing so "complicates things unnecessarily and imbues allowance with power struggles and control issues," says Pearl. "I think of [an allowance] as learning capital. . . . They have to have some money to practice with."
For many kids, 3 is a good time to begin getting an allowance, experts say. This sounds early, but it's then that children start understanding the notion of exchanging coins for, say, candy. Deciding how much to give can be tough. "If the parents can afford it, I have them pay their age per week," says Godfrey. "A 3-year-old gets $3."
Sound like a lot for a little person? Godfrey's plan takes 10 percent off the top for charity. The remainder is divided into thirds and put into jars. The quick-cash jar "is for instant gratification." This spend-as-they-choose money means that candy bars, Pokemon cards, and other impulse buys are no longer paid for by Mom and Dad, which causes kids to curb many impulses. Says Godfrey of her 17-year-old daughter, Kyle: "Her Starbucks bill is her own."
The second jar is for medium-term savings, meant to be spent on medium-ticket luxuries like in-line skates or a CD player. The final jar is invested for the long term, such as for college.
Kelly Grant, 13, thinks that is fair. An eighth grader in Greenville, S.C., Kelly and his brother, Christopher, 15, each get $15 a week. The tradeoff: "I have to walk and feed the dog, and I have to do the recyclables," Kelly says. He spends but still saved enough to buy a Sony PlayStation.
Christopher, who has a girlfriend, spends most of what he gets; he supplements his pocket money by doing extra work, like mowing the lawn. "I'm supposed to do a load of laundry every night." He has, he admits, a tendency to forget. "They charge my allowance sometimes," he says. "But they don't really remember to do it."
The Grant boys are still learning about earning and show signs of valuing money. They wouldn't stop to pick up a dime, but both say there are coins they would rescue from the sidewalk. Says Christopher: "You can do a lot with a quarter."
WHERE TO LEARN MORE
Money talks, but the trick is getting kids to listen. Here are some helpful tools:
The Allowance Game, ages 5 and up, lets players collect an allowance and spend it. The first to save $20 wins. Cost: $16.95 plus $4.95 shipping. To order, call 800-542-8338.
Site seeing. Jayne Pearl's www.KidsAndMoney.com shows kids how their parents' allowance, adjusted for inflation, compares with their own. Take a money-related quiz at www.kidsenseonline.com.
This story appears in the February 21, 2000 print edition of U.S. News & World Report.