Barbara Van Husen may be a wiz at planning computer systems. A much tougher assignment has been figuring out how much allowance her children, 6 1/2 and 8, should receive and whether they have discretion to spend money as they wish.
A year ago the system broke down because the children had a hard time understanding how to count money and differentiating between play and real money. Now the family is trying again with greater success.
“Both are beginning to understand the concept of being able to afford something with their allowance, the idea of getting change and putting money in the bank,” says Van Husen, whose husband, Frank, decided that $1 per week per child was appropriate.
Ever since it replaced barter, money has come to symbolize such highly charged emotions as power, self-esteem and love.
An allowance is one way that parents pass on lessons to their offspring, not only learning financial responsibility, but also that goals can be attained with prudence and planning.
Allowances often become a source of intergenerational strife, however. Differences arise over the amount, whether it should be a quid pro quo for household chores, what it can be spent on and whether any portion must be squirreled away.
Lawrence Balter, a New York psychologist and author of “Who’s in Control? Dr. Balter’s Guide to Discipline Without Combat” (Fireside, Simon & Schuster, $10), doesn’t think that an allowance should be pegged to family chores because everybody should pitch in.
He also doesn’t think that an allowance should be given with strings attached. “If you do, young children don’t have a way to accumulate anything of their own, except for the money they receive for birthdays and holidays,” he said.
At the same time, Balter believes in periodic restrictions. “It’s fine to say no to something your child wants to spend their allowance on if you consider it inappropriate. You also don’t have to offer a `loan’ if your child spends all their money.”
The key is consistency.
Balter also believes that it’s a good idea to use an allowance to teach about savings by having children invest a percentage of each week’s amount.
“At some point, it’s time for them to learn that there’s another kind of CD, a financial instrument,” he says.
Paul Wenstrom, resident manager of the Merrill Lynch & Co. office in Flint, Mich., has set up checkbook and savings accounts for his six children, aged 9 to 16.
“We discuss options, but there aren’t a lot of strings. That way they’ve learned that the money will grow and be there when they want something.”
Many businesses and non-profit organizations try to teach children and teenagers about personal finance while reaping investment dollars. The funds available are more than pocket change. Teens have at their fingertips about $109 billion of their own and their family’s money, according to Teenage Research Unlimited in Northbrook.
Stein Roe & Farnham started a fund two years ago specifically for children to invest in high-quality growth stocks that they’re familiar with, such as Coca-Cola and McDonald’s. Children must invest a minimum of $100 and subsequently $50 per month if the account is opened as a Uniform Gift to Minors Account. As of June 28, the fund’s 35,000 shareholders realized net assets of $115 million and an annual return of 47.6 percent. Since inception, the return has been 33.8 percent.
The non-profit National Endowment for Financial Education in Denver focuses on helping high school students set and achieve goals because they have the most discretionary dollars, says program director Elizabeth Schiever.
Integrated into economics and business classes, the program poses teenage versions of Harvard Business School case studies. For example, Pat Gray wants to attend an out-of-town football game in six weeks that will cost $175, buy a stereo system within three months for $240, start saving for his prom that will cost him $200, and attend the state university next year at $2,300 per semester. The challenge for students is to help Gray figure out how much to save weekly so he doesn’t have to hit up his parents for funds.
To learn more: “Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children” ($11) and “A Penny Saved: Using Money to Teach the Values and Life Skills Your Kids Will Need in the Real World” ($12), both by Neale S. Godfrey and published by Fireside Books, Simon & Schuster.
