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Making Allowances

Parents have been handing out allowances for generations, and no one has come up with a significantly better way to give kids the chance to manage money, concedes Paul Simino, founder of, a national student loan consolidation firm. But when negotiating allowances, “Make sure there is a ‘contract’ that governs the terms of the transaction,” Simino suggests. “Both parties need to understand exactly what’s involved; how much the allowance is going to be, and what does the child have to do to earn it.

   “If the kid doesn’t live up to the bargain, there needs to be a consequence — like, no money (or reduced money) that week. The youngster needs to understand that the money has to be earned, and that it has value. The value is the work that went into earning the money. Don’t be a softie on this one, or the lesson will be something like this: If I whine and complain loudly enough, Mom and Dad will fork over the cash anyway.”

   Simino has more allowance advice.  Encourage your youngster to save allowance money and not simply blow it every week, he advises, adding, “Help them come up with reasonable goals, and help them decide on a good amount to put aside.”

   And don’t be a welcher! “Make sure you live up to the bargain. When the money is successfully saved, help them go and make the agreed-upon purchase. Don’t ever change the rules at the end of the game.”

   Every expert, from financial whiz to child psychologist, has different ideas on allowance amounts.  Simino says: “That’s between you and your child. One good guiding principle is that the amount should be low enough to get across the importance of working hard, but high enough so as not to be discouraging. And remember, just because you may make a comfortable living, that’s not a very good reason to make your kid the highest-paid allowance-earner in the neighborhood. This allowance thing is all about teaching hard financial lessons, not communicating the fact that Mom and Dad are rolling in dough.”

   Simino also makes a good point in that “sometimes we spend so much energy talking to kids about allowances, savings and good spending decisions, we forget that children might need some sort of context for all that information. Why is savings good? What’s the point of managing money? What’s the big picture?”

   He advises allowing youngsters to “make at least some of their own money-management decisions, and increase their role as they show they can handle the responsibility. Encourage them to use the family computer to track their money and keep track of deposits and withdrawals. If you have a money management program like Quicken or Microsoft Money, perhaps you could set them up with their own account and show them how to use it.”

   And the bottom line: “Make it all as entertaining and exciting as you can.

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