New Year, new allowance rules for kids

When it comes to allowances, kids and parents alike believe "everybody's doing it," ... everybody except them. The truth is, however, while some families do have their progeny paydays in order, most of us don't. We all want to teach our kids how to be financially savvy and responsible, but somewhere between good intentions and real life, the wheels fall off the bus and allowances get stuck in the breakdown lane.

In fact, a study by Canadian marketing and social survey research consultancy, Environics Research Group, reported only 41% of parents provide allowances.

Judging from an informal poll of Facebook friends and colleagues, that sounds about right, however, the absence of allowances doesn't mean parents don't like the idea.

"I had to give up on allowances," wrote mother of two, Suparna Mhaskar Lundquist on Facebook, "It got to the point where I was nagging more than it was worth." Gigi Green wrote that her plan was, "In theory, $10 dollars a week for chores: picking up dog poop (three dogs) daily, empty dishwasher, feed dogs, clean room, put clean clothes away ... In reality: none of the above." While Kim Petersen wrote, "It's all a mystery to me."

Parent, Tom Castillo, LPL wealth adviser for Castillo Wealth Management, says although he's not a proponent of allowances, he does want to teach his girls the lessons of living within their means and spending less than what they earn. Castillo told WalletPop that he and his wife sometimes give the kids money to spend on a family outing and if they have anything left over at the end of the day he will match it for their savings accounts.

Jean Chatzky, author of Money 911 and financial editor for NBC's Today Show told WalletPop she definitely has a philosophy regarding kids' allowances, "and it's a big one." Mother of two, ages12 and 15, Chatzky describes herself as a "big believer in allowance," but adds, "most people do it wrong."

Along with the cash infusion, Chatzky says parents should also hand over a thoughtful, realistic list of things they will no longer be paying for. "The point is to teach them that money is a limited resource," says Chatzky, who explains, "when they receive a small allowance, the list is smaller and as the allowance gets bigger, the list gets bigger." Eventually, she says, the practice should help them manage a budget.

Since I have never been successful at setting up an allowance for my own kids, my nine-year-old took great interest as I wrote this story. He was thrilled I might be softening up, and I told him I liked what Chatzky had to say. We talked about the idea of a list and at first he was all smiles and thumbs up, however, upon further consideration he expressed concern. "But what if I buy something," he asked, "and then I see something else but I don't have enough money left?

Bingo. That's the problem, kid. We talked about planning and saving. I could see the wheels turning, and of course, he wanted to talk numbers.

"It's a good idea to take a random poll of friends and neighbors to find out how much they are giving for allowances," says Chatzky. Give too little and the concept risks being ineffective and won't be taken seriously. But give too much and there isn't a need to budget. Chatzky said kids should still feel an incentive to work (wash the neighbor's car, walk dogs, babysit) for the things on their wish lists.

"Their money (the money they earn outside the home) is much more valuable than your money," notes Chatzky, "it's more meaningful to them than their allowance money." She said when one of her own kids realized the price of a desired item was going to cost two hours worth of work he decided it wasn't worth it. This is the kind of learning experience Chatzky believes instills a respect for money as well as an understanding of its value.

Chatzky and other financial experts agree that allowances should usually begin around the time kids start school since students will be learning about counting and money valuations in the early grades, but it doesn't need to be very much. Candy Johnson, mother of two ages 13 and 16, said her kids have been receiving an allowance since Kindergarten. "It's a little less than their age in dollars," said Johnson, "and yes, we do give a raise every year." Websites, such as also suggest pay scales and ideas (click on the "parents" tab, and check out "allowance stats").

The question of whether or not to tie the money to chores or expectations is equally debated. It seems obvious that kids should learn to work for what they earn, however, Chatzky says that can backfire.

"Some kids are motivated by money and some aren't," she notes. In addition, if a child has just had a birthday or recieved money or gifts for whatever reason, they may not feel a burning desire to do their chores. Chatzky says her own kids are expected to help with household tasks and meet parental expectations as a part of belonging to the family. She says they will miss watching their favorite TV shows, or using the computer much more than their allowance if they don't contribute. Johnson's system works the same way, "There are no chores associated with the money," she says. "However, they are expected to do chores when asked, just because they are a member of the family ... it's worked well for us."

No matter what the amount or allowance philosophy, Chatzky is firm that the money should be paid to the child on time, even though she admits she hasn't always done that herself. "When we don't pay up on time, we send a message that it's okay not to pay bills on time," says Chatzky.

It's definitely not the lesson we were looking for. "It's never meant to be malicious," she admits, "it's just we don't have the cash on us, or we forget, so we get behind." It can get confusing to remember how much is owed, and to whom. Chatzky says it's at this point many plans "fall apart." She offers two solutions.

ThreeJars is a new, subscription-based website devoted to helping kids and parents manage allowance money. Currently in its beta stage, Threejars is designed to teach money management skills and good spending habits. Kids and parents access individual, online accounts to record payments and distribute funds virtually. The "three jars" represent how the allowance will be divided: spending account, savings account, and charitable giving account.

How much to put into each account is for the child (perhaps with parental direction) to decide. In reality, the parent keeps the money in their own bank account until they receive their child's request for cash or a gift card (which can be purchased from the site). The site is also partnered with several non-profit organizations such as Save the Children, the Whale and
Dolphin Conservation Society, Share the Music, and Play Soccer (charitable receipts will be issued). Chatzky herself will be providing money-management videos to watch on the site and is a board member for the start up. Threejars is currently offering a free 15-day trial subscription.

Chatzky suggests older kids could benefit from opening a fee-free checking account and learning to use a debit card. Using this system, parents could transfer the allowance into the kid's account on payday via automatic bill pay. Chatzky says this method would teach lessons about monitoring balances, over limit fees and how fast money goes when it's plastic.

In addition, Chatzky points out they will learn the importance of protecting their card and their code from those who may wish to steal the information. "It also may not be a great idea to be telling friends how much they have in their account," says Chatzky, who notes friends might then expect Miss Moneybags to pick up the bill at lunch. This system also eliminates random dollars being stuffed into drawers or pockets.

Although convenient in many ways, Chatzky notes even a 15-year-old might not be able to access an ATM whenever he wants. In that instance, he may still come to the Bank of Mom. If the accounts are linked together, a parent can hand over the cash and then electronically transfer the funds from junior's account into their own.

It may not be high finance, but it's still finance and ThreeJars founder and father of five, Anton Simunovic, believes the sooner kids start learning those lessons the better. He writes on the website, "If you're like me, and lots of other parents, you want to raise financially responsible kids. Partially it's because we want them to eventually move out and stand on their own two feet. But mostly, it's because we want them to do well, to get ahead, and lead happy, purposeful lives." He also notes that 18-24-year-olds represent the fastest growing age group filing for personal bankruptcies.

Simunovic emphasizes that, "now is exactly the time to financially empower them ... it's easy to see how kids who start a sport early in life and work really hard at it, become solid athletes by the time they are 20."

It's a strong argument for getting in the game.
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