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| The Basics | Why allowances don't work
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That weekly infusion of cash often teaches kids very little. Try giving them a monthly amount -- and put them in charge of their money decisions.
By Liz Pulliam Weston
Raise your hand if any of the following sounds familiar:
- You give your children a weekly allowance, but theyre constantly bugging you for more money or stuff.
- No matter how much you lecture about the importance of money and saving, cash just seems to slip through their hands.
- Deferred gratification, comparison shopping and the difference between wants and needs are all alien concepts to your kids. What matters is what their friends wear and have.
- You despair of your offspring ever having the financial skills needed to navigate adulthood successfully.
If this is the world you live in -- or one you fear -- it might be time to ditch the idea of an allowance altogether. Instead, consider replacing these weekly infusions with a monthly chunk of cash that your children use to cover most or all of their spending.
Instead of turning to you for clothing, school supplies and activity fees, your children manage those costs themselves -- along with all their incidental expenses that used to be covered by their allowances.
Sound radical? Its obviously not an idea that could work for kids under 10. But neither is it a concept that should be delayed until college, which is when most young people get their first real crack at managing money, argues parent John Whitcomb.
Cash and responsibility can work wonders
By then, theyll be far from your supervision -- and pelted with credit cards that can turn their bad spending habits into true financial disasters. Whitcomb, a Milwaukee, Wis., emergency room doctor and father of two, says its much better to begin giving children the reins starting in middle school, while youre still able to supervise them.
Whitcomb outlined the concept in his book, Capitate Your Kids (Penguin 2002), also published as The Sink or Swim Money Program (Viking, 2001). Capitation is a health industry concept that basically means giving a fixed amount of money to doctors or a hospital to care for a population of patients. In essence, theyre given both the money and the responsibility for spending it wisely.
Think how different that idea is from the traditional allowance. In most cases, an allowance is:Too frequent. If you give your child money every week and she spends it all, she just has to wait a few days to get more. Theres little incentive to plan and not much real pain if she makes a mistake.
Not all-inclusive. Since youre still shelling out for most things, you remain the go-to person when your child wants something. That leads to nagging and whining -- plus theres little opportunity for your child to learn true responsibility.
Too small. Allowances typically cover only discretionary expenses. In the adult world, however, most of our money goes to mandatory expenses -- shelter, food, transportation, etc. Children need to learn the concept that most money is spoken for and not available for anything they want. At the same time, kids who are given significant sums can learn some important concepts: - Resources are finite.
- Longer-term planning is an important skill.
- Careful shopping can stretch what they have.
Once its their money -- to do with as they will -- the choices they make tend to change.
Parent Rick Brohmer of Waukesha, Wis., has already noticed this phenomenon with his three older children, now grown. While they were in school, brand names were essential. As [they] left the nest and started buying on their own, brand names were less important, said Brohmer, who still has a 14-year-old, designer-desiring daughter at home.
Start with the clothing budget
John Whitcomb learned his own money skills as the child of missionary parents in India. Sent away to boarding school for four months at a stretch, he and his siblings were given a terms worth of cash at a time to pay their monthly tuition, buy clothes and cover their other expenses.
He adapted his experience into a six-step plan that starts when children are in middle school, with the creation and implementation of a clothing budget. Gradually, more expenses and responsibility are added. Kids learn to use an ATM card in ninth grade, a checkbook in 10th and a credit card in 11th to help manage their costs.
By the time theyre ready for college, theyre handling all their own expenses, including auto insurance and perhaps even paying their parents room and board.
Long-term saving, investing and charitable giving can be incorporated as priorities, as well.
You can start smaller, if you want. Some parents may find that a clothes budget may be too big for pre-teens to handle.
Screw-ups teach great lessons
Susan Beacham, a personal finance educator in suburban Chicago and co-founder of the Money Savvy Generation Web site, is starting her 12-year-old daughter Allison off with $25 a month to cover books, magazines and the once-a-month lunch out that her parents had been paying for.
Beacham and her daughter are still negotiating the details. Allisons not at all sure, her mom says, that the added responsibility is worth losing her mom as a source of constant funds.
Shes still very apprehensive about taking it over, Beacham said. But we have to get more girls understanding that they have to grab the reins. It will help them in later life become the independent, risk-taking people we want them to be.
Parents whove tried capitation say screw-ups are inevitable -- and an important part of the learning process. Nan Meads sixth-grade son blew his first months capital, meant to cover lunches, hair cuts and all his miscellaneous expenses, in a week on CDs and pizza for his friends. Mead, communications director for a financial education foundation in Colorado Springs, Colo., refused to give him more cash, and he wound up taking sack lunches to school. That was a big setback for a kid who thought hot lunches were cool. Gradually, he learned his lesson.
Big enough doses to be meaningful
His money management skills improved each month, Mead said. By Christmas, he was doing quite well, even saving for some short-term goals. Meads son is now in college and handling money responsibly.
With their parents help, kids on this plan learn to anticipate what expenses theyll face and how much they should set aside for them, Whitcomb said. They learn that, if they dont buy the $180 sneakers but settle for a $40 pair, theyll have more money for other things they want.
The parents have some work to do as well. They need to figure out how much is a reasonable amount for various expenses, and, almost invariably, they learn theyre spending a lot more on their kids than even they suspected, he said.
But Whitcomb doesnt advise trying to save money by giving kids less than youd spend otherwise. The idea isnt to cheap out but to teach children about money in big enough doses to be meaningful -- and for purposes that intensely interest them, he writes.
Your success comes not in saving money in the short term but in creating a state of mind that living contentedly within your means is the key to financial independence.
Monitor -- but resist the urge to rescue
Parents also need to keep tabs on their offsprings progress; Whitcomb recommends monthly meetings. He also believes parents should resist the urge to step in when their kids fail. If your kid does buy the more expensive sneakers but fails to save for the winter coat he needs, you shouldnt dig into your wallet, he says. You might, however, drive him to the nearest Salvation Army store.
Beacham says shes already learned that a firm but gentle hand pays dividends. On a recent shopping trip, her daughter began pleading for the latest issue of Teen People.
I said, Youve got your money; its in your wallet. I reminded you to bring it, Beacham said. We walked out of that store with nothing.
As Allison gets used to handling money, shell be given responsibility for more expenses. By the time shes a junior in high school, Beacham hopes to be giving her the money in one annual payout.
People are surprised by that, but, in two years, theyll be doing the same thing on a college campus, Beacham said, and theyll have seven credit cards.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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