On the money: When your youngster is ready for an allowance, make it a learning experience that pays

For many parents, deciding to give their child an allowance is easy. The hard part is figuring out how to dole out the dough. <br><br>"There is simply no one system that will work for every family," says

Tuesday, March 14th 2000, 12:00 am

By: News On 6

For many parents, deciding to give their child an allowance is easy. The hard part is figuring out how to dole out the dough.

"There is simply no one system that will work for every family," says Janet Bodnar, author of Kiplinger's Dollars & Sense for Kids. (Kiplinger Books, $17.95). "Some families can manage a more complicated system, and other families can't. . . . Know your kid and know yourself. [Ask yourself] what kind of system can you manage, and what are you trying to teach your kids?"

The key to a successful allowance system is to keep it simple and set the ground rules in advance, say experts. To help make this job easier, financial and parenting specialists offer these answers to commonly-asked questions about allowances.

At what age should a child begin to receive an allowance?

Most experts suggest starting an allowance when your child can tell one coin from another - typically around age 6 or 7 as kids begin to learn about money in school. At this age, a child starts to understand that $1, for example, is equal to 10 dimes or four quarters.

And $3 will buy a pack of PokÃ©mon cards or go halfway toward a Beanie baby purchase.
While some kids, especially those with older allowance-receiving siblings, may get money earlier, you don't want to rush the principles you are trying to teach. Preschoolers generally don't understand the abstract idea of money, says Ms. Bodnar, senior editor and the Dr. Tightwad columnist for Kiplinger's Personal Finance Magazine.

Although it's never too late to begin an allowance system, "the longer you continue to foot the bill for everything, the longer they will expect it," Ms. Bodnar says.

So how much money is enough?

Give enough so that your children don't squander it, but not so much that you'll be upset if they do, says Ms. Bodnar.

Nationwide, 6- to 8-year-olds average about $4.80 a week, according to the Nickelodeon/Yankelovich monitor survey. The dollar amount rises to $7 for kids 9 to 11 and $16.60 for 12-to-17-year olds. Some parents provide an allowance equal to their child's age, while others are more comfortable with a weekly sum equal to half their age. At 6 years old, for instance, Junior gets $3; by age 7 he is up to $3.50. First-graders need at least $1 to $2 a week to do any serious spending or saving, says Ms. Bodnar. As they get older you can adjust the amount depending upon which expenses the allowance should cover and even switch to a monthly allotment to reward solid money-management skills.

Once a child enters early teens, some families opt for a larger lump-sum allowance, say $50 a month, to cover everything from birthday gifts for friends to movie tickets and haircuts. High school juniors and seniors also may benefit from the "real world" experience of managing a quarterly clothing budget.

No matter how much you give, talk to your kids to relate what the money should cover. Let them know if you don't plan on paying for extras, like candy or computer games, so there will be no surprises come payday.

Discussing long- and short-term goals, saving for the school ski trip, for instance, is a great way to instill the financial habits you want to pass on.

Make sure money in hand encourages saving, recommends the National Center for Financial Education. For example, if the amount is $5, give out five $1 bills and encourage at least $1 be set aside in savings. Just saving $5 a week at 6 percent interest compounded quarterly will total about $266 in a year, $1,503 in five years and $3,527 in 10 years, the NCFE says.

Should allowance be tied to chores?

This is the most controversial piece of the allowance puzzle. Just about everyone agrees that children should be expected to do some chores without pay - picking up toys or clearing the dinner table, for example - simply because they are family members. But many child development specialists discourage parents from tying a child's allowance solely to chores. Kids may come to expect payment for any help they give around the house or flatly refuse to do the work when they don't need the money.

Parents have mixed feelings about the issue. While some don't believe in "bribes" to get children to pull their weight around the house, others say that the chore-based approach is just the incentive needed to encourage more responsibility around the house.

The biggest problem with the pay-for-work strategy is administration, say experts. It can be a nightmare keeping up with the nuances, and parents may end up forking over cash whether or not the child did the dishes, which defeats the purpose of the allowance.

Additionally, withholding or reducing an allowance for bad behavior and increasing it for good transforms the allowance into a discipline tool rather than a way to teach money management.

What about specific situations?

Say Billy has blown his allowance and needs bailing out. In most cases, resist the urge to give your child an allowance advance. And the same goes for granting constant requests to buy things with promises of repayment when you return home. If you do advance money, treat it more like a loan. Create a contract for how the sum is to be paid back, says Pete Stavinoha, Ph.D., a pediatric neuropsychologist with the Center for Pediatric Psychiatry at Children's Medical Center of Dallas.

"Sit down and make it a big deal, not a casual interaction," says Dr. Stavinoha. Although you want to avoid a pattern of borrowing, if requests for more money are frequent, talk with your child to make sure the money drain is not more of problem on your end. There may be a legitimate reason to consider a raise.

How should divorced parents handle an allowance system for their child?

If possible, an allowance system should be part of a united front when dealing with your child.

If one parent is providing child support, the other may want to handle the allowance, or vice versa. Or both parents can chip in an equal amount. Another idea is to create a checkbook system that a child can carry back and forth so each parent can know what the other is providing. If you don't want to get that formal, at least agree who will finance the allowance.

What about a raise?

A good time to consider raising your child's allowance is at the beginning of a new school year or on your child's birthday. But figure that out in advance and be consistent.

If your children insist they need more cash, ask them to prove it to you by considering what they spend their money on. They will either think about it or be too lazy to do it.

Either way, you've presented an alternative that allows your child to choose to live within the budget or plead his case.

Hint to kids: "Don't whine," says Ms. Bodnar. Instead, take the initiative and outline your income and expenses, keeping in mind "needs" vs. "wants." Your parents may be so impressed by your initiative that they'll boost your pay, anyway.