BUSINESSWEEK ONLINE : SEPTEMBER 25, 2000 ISSUE
BUSINESSWEEK INVESTOR

Teach Wisdom with $20 a Week


An allowance, in theory, should help teach a child about budgeting and money management. But many well-intentioned parents unwittingly sabotage that effort. Take Cynthia Vail of Athens, Ga., who doesn't always follow through on the deal to pay her 11-year-old son and 7-year-old daughter $5 per week each. ''I never got into a routine. I would go two weeks, and it would fizzle out,'' she says.

Failing to stick with the program is only one of the mistakes parents make. Another biggie is picking a weekly amount out of thin air, with no thought to how it would be used. A more sensible approach is to arrive at a number by deciding with your child what the allowance should cover--say, after-school snacks, movies, and toys. Then figure out what you are paying for those items now. Once you have a base amount, add a little extra for savings, charitable donations, and even impulse purchases--and keep the total constant. ''Parents balk at giving $20 or $30 a week,'' says David McCurrach, author of Kids Allowance: How Much, How Often and How Come (Kids' Money Press, $8.95). ''But they are already spending that much for those things.''

It helps to put the ground rules in writing. Spell out exactly what the child is responsible for buying. Also, can the child use the savings allotment for ordinary expenses? Will you allow advances, and if so, will you charge interest?

Obviously, you want to start out simple with a young child. A 5-year-old doesn't need $20 but can get a dollar a week of pocket money to spend in the supermarket. As children grow and venture into the world, the allowance should wax with them. For example, a teenager may get a monthly gasoline or clothing allowance. Don't assume your child knows how to keep track of expenses, though. Be sure to help initially with the bookkeeping.

MAKE THE BED. Many parents think kids should work for their weekly stipend, but psychologists and educators say no. ''Don't tie allowances to chores,'' says Marilyn Gootman, author of Loving Parents' Guide to Discipline (Berkley Publishing Group, $12). Every member should have responsibilities simply because they are part of the family, she says. Just as parents don't get paid for making dinner, kids shouldn't get money for making their beds.

So why do so many parents link allowances and chores? ''They are trying to motivate their kids to do things around the house,'' says McCurrach. But money often doesn't work as an incentive, since the kids may just decide that they don't want or need it. Then parents are left with no leverage. If you want to teach a work ethic, provide opportunities to earn extra money by babysitting or mowing the lawn.

One important rule about an allowance is to pay on time. Also, let your kids make mistakes and don't bail them out when they run out of cash. Such discipline makes it clear to your children what happens with money in the real world.

By Elaine S. Silver

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