Allowances

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By Gail Vaz-Oxlade

Before children can learn to manage money well, they first need to be able to get their hands on the stuff. The debate about allowance - how much children should receive and who should manage it - rages.

The strings attached to the money you received as a child will have a strong bearing on the strings you attach to your children's money. Perhaps you were never given an allowance and had to work for every penny you got. This may colour the way you look at allowances in general. Your allowance may have been tied to chores, or you may have been required to save all the money received as gifts.

Whatever your own personal experience with money as a child, try to put them aside as you read through this chapter. After all, just because you had to walk seven miles to school in blinding snow with a hole in your shoe doesn't mean you necessarily want the same thing for your own children.

When you begin to think about an allowance for your kids, there some questions you need to ask yourself:

• Should I give my child an allowance?
• At what age should I start an allowance?
• Should an allowance be tied to anything in particular?
• What do I expect of my child in terms of how that allowance is managed?
• How much should my child get as an allowance?
• How often should my child receive an allowance?
• What will the allowance be used for?
• Am I prepared to give advances, loans and extra money, and if so, will there be any strings attached?
• How will I help my child learn money management?

Is an allowance appropriate?

The simplest way to start children off on the road to sound financial well-being is to give them some loot to manage. How much you give will depend on your personal circumstances and your attitude towards the whole concept of an allowance.

The alternative to an allowance, and a trap for most parents, is the dole system. That's when your kid asks for some cash and you dole it out. Since the dole system has no limit, there is no reason for a child to make a decision on relative value. In fact, if you ask a child on the dole system if he wants an allowance, ten to one he will choose to remain on the much more lucrative system he has. After all, while he will have to put up with some lecturing and lamenting from his parents, he'll likely get just about anything he wants.

Another downside to the dole system is that you remove all control from your child. You get to decide which of his requests are valid enough for consideration, and your child feels like a beggar. Your child learns the gimme's really well and you grow resentful of the constant requests for cash. "But Mom, I only need two dollars." "Gee Dad, it only costs five dollars." "Can I have another quarter? Another dollar?"

If you're currently on the dole system and don't fully appreciate what it's costing you, consider keeping track of all the small change you hand over to your kid in a month. You may be surprised at how large his allowance is!

To learn how to manage money responsibly, children need an income they can rely on - one given at regular intervals. The experience of handling a steady flow of cash will teach many fundamental skills, including how to manage a cash flow, how to plan ahead, the skill of setting goals (both short- and long-term) and how to save to satisfy a goal. With your guidance, this cash flow can also be used to teach important lessons in borrowing and lending, the pleasure derived from generosity, how to be a good consumer and the importance of considering those less fortunate.

Ultimately your children will learn all about the family's budget and how they can contribute to the family's financial well-being: ways to save expenses (turn off those darned lights!) and how to shop smartly (who better to advise on the purchase of the family's home computer than your techno-whiz?). They will learn that the little things add up (20 percent saved on this item means two dollars that can be spent on something else) and that every nickel does count. Children progress pretty quickly from bubble gum to Guess jeans. While the dollar amounts they spend rise dramatically as they age, their respect for money doesn't automatically increase proportionately. Only by helping them to learn the important money lessons will they develop the appropriate attitudes towards money.

Excerpted from The Money Tree Myth: A Parents' Guide To Helping Kids Unravel the Mysteries of Money by Gail Vaz-Oxlade (Stoddart).

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