Can your child manage money?

By Maggie Galehouse

Houston Chronicle

Nobody likes a spoiled brat.

And the air of entitlement wafting around that type of kid - which only grows thicker as the child grows older - often is linked directly to money. Teaching children how to respect and manage money begins with an allowance.

One rule of thumb is to give one dollar for each year of age.

"But I wouldn't start at $5 for a 5-year-old," says Janet Stern Solomon, financial expert and human resources professor.

It's too much.

Solomon wrote "Bratproofing Your Children: How to Raise Socially and Financially Responsible Kids" with her husband, Lewis, in 2007. Since then, a national financial slump has rendered money management an essential skill for people of any age.

For children, an allowance should be a fixed amount at regular intervals; the amount and frequency depend on the age and maturity of the child, Solomon says. Younger kids should get a small amount each week; teens might get a larger sum once a month.

An allowance should not be linked to household chores.

Cleaning your room or picking up after yourself is simply pulling your weight in the household. You don't get extra credit - or money - for that, Solomon says.

The same goes for grades. Studying and doing homework are baseline expectations. Parents shouldn't pay kids for good grades.

That said, a parent might reward a child for a special academic honor or pay for a special chore, such as cleaning the garage or weeding the garden, Solomon says.

Saving is a big piece of the financial lesson.

"You might give a younger child $5 in singles each week, so they can set a few dollars aside," Solomon says.

Discussing family finances with children when they reach the age of 10 or 11 is another opportunity to make a powerful point.

Solomon suggests starting with a big pile of Monopoly money that totals the amount Mom and Dad bring in each month. Tell the children how much each bill costs - the gas bill, electric bill, cable bill, insurance, mortgage and so on - and have them pull those amounts out of the big pile.

"It's very dramatic," Solomon says. "When you start, there's a large pile of money. But by the time you're finished with the necessities, the pile is a lot smaller. It's a real example that there is only so much to go around."

When you get right down to it, money management doesn't require real cash at all.

In her book, "The No-Cash Allowance," author and blogger Lynne Finch outlines the system she and her husband designed for their own children. There's no cash involved because kids see cash as something they need to spend immediately, Finch says.

Under Finch's system, the child controls a virtual pool of money and keeps an account on paper or online. The money and responsibilities increase as the child gets older.

"I wanted my kids to have an allowance," Finch explains, "but I didn't want them to think it was for whatever they wanted."

Beyond a flat allowance or "weekly credit," the virtual account contains money for stuff kids need and want, such as school supplies, birthday presents, clothes and electronics.

Let's say the child has $70 in the virtual account. Of that, $50 has been allotted for school expenses, leaving $20 for a birthday present to bring to an upcoming party.

But once at the store, the child selects a $25 birthday gift. Should the child spend $5 less on school supplies and purchase the desired gift? Find a less expensive gift? Spend $50 on school supplies and wait until the following week to buy the birthday gift, when an additional $5 in "weekly credit" will be added to the virtual account?

These are the painful decisions of effective money management, Finch says, and this is what children need to sort through.

In a world that runs on debits and credits, they need to watch the money coming in - and going out.

"It's money parents would be spending anyway," Finch says. "So all parents are doing is transferring control and responsibility to children in a safe environment."

Giving up that control can be tough for moms and dads, she adds.

It's hard to watch your child purchase a flimsy toy or poorly made clothing. But dealing with the aftermath of a bad purchase is part of a financial education.

It's OK to consult with your children if they ask for advice on a purchase, Finch says. And it's important to sympathize with them after a bad purchase. But let them control their own small financial destiny.

"If they don't make mistakes now, they're going to make mistakes later," Finch says. "When they learn to drive a car, eventually you have to give them the keys."

how much is too much?

The allowance It's a fixed amount of money given to children at regular intervals. The amount and frequency depend on the age and maturity of the child. It shouldn't be tied to chores or decent grades; these are basic expectations for children.

The timing Kids are never too young. Even a 3-year-old understands that if a coloring book costs $4 and he has only $3 to spend, he's out of luck.

The amount That depends on the child. Come up with an allowance based on what your child wants to buy. If your 7-year-old likes Pokemon cards and a big pack costs $10, a $7 weekly allowance would get him two packs every three weeks. Does that sound reasonable?
Copyright 2010
Provided by ProQuest Information and Learning Company. All rights Reserved.