Teaching Kids Fiscal Responsibility

The days of little Jimmy mowing lawns for quarters may be a thing of the past, but the weekly allowance is still an important part of teaching your children fiscal responsibility. But how does a parent make a weekly allowance count for anything when younger and younger children have their eyes on iPods, cell phones and credit cards?

For young children, from 3 to 12, experts say, many of the old rules still apply, like setting up clear guidelines for how much your kids get and when.

"I start the money lessons at age 3, when the kids begin saying 'I want, I want'," says Neale S. Godfrey, author of books on children and finances. "You want to teach them the natural consequences of money."

Godfrey's system, and the time-honored standard, is a dollar every week for each year of the child's age. She also divides the allowance into portions for charity, saving and spending as a way to encourage good habits.

Rules work great for small children, whose purchases are entirely discretionary. But teenagers are different and the ground may have shifted in recent years.

"Kids are definitely spending a lot more money than they used to," says Daisy Chan, parenting director at Redbook magazine. But $17 a week for a 17-year-old just doesn't cut it any more. So, instead of giving a fixed allowance, it has become more common for a parent to simply hand over cash when a child asks for the latest cell phone or iPod model.

On average teens spent $91 a week last year — including money from an allowance or that parents gave them for purchases when asked — according to Teenage Research Unlimited, which surveyed 2,000 young people ages 12 to 19. Only 22 percent of teens received a regular allowance but 54 percent said they got money from parents when they asked for it. And they made out pretty well. More than half of teens had a cell phone and over a quarter owned a new or used car.

To make sure teens learn responsibility, even as they crave more and more of the accoutrements of adulthood, parents need to be flexible and creative.

One way to incorporate fiscal responsibility into a complex adolescence is to buy your kid the cell phone but make it his or her responsibility to pay for any extra minutes above and beyond a basic plan. Likewise, have your teen contribute towards the purchase of a car, either by saving up for the down payment or pitching in with the insurance.

Prepaid debit cards marketed for teens are also a way for parents to limit spending but give older kids the freedom to shop where they want; parents can view their purchases online.

One old-fashioned approach, tying allowance to chores or grades, has gone out of fashion.

The child should feel like he wants to contribute to the household workload without having it tied to money, says Chan. Otherwise "you get into the situation where your kid might say 'I don't need five bucks, I won't take out the garbage.'"

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