By: Cynthia Dizikes
August 28, 2011
Ryan Evans perused the shelves of a toy department, grappling with one of the biggest financial decisions of his life: pay $24.99 for a rapid-fire Nerf gun or keep saving for a Star Wars Lego set.
Ryan, 10, gets a $6 a week allowance, but by parental decree, $2 must go in a "savings" envelope and $2 in a "charity" envelope. If he bought the toy, Ryan knew it could take more than three months to replenish his spending funds.
The foam dart blaster landed back on the shelf.
Another win for Ryan's mother and father, who, like many parents today, are using the traditional weekly allowance to teach their children the benefits of not only spending wisely, but saving, donating and even investing.
"We wanted to show our children that life isn't as simple as, 'I have this rolled-up cash in my top drawer,'" said Ryan's father, Michael Evans, a financial adviser in Chicago. "You have to plan a little bit for now, a little bit for later and a little bit for helping others."
Parents long have given children allowances to help them learn how to budget. But in these difficult economic times, many have turned allowances into tools for teaching kids about the more complex, and sometimes disappointing, nuances of the financial world, from dealing with a down market to learning about the benefits of compound interest.
Some parents like the Evanses use an envelope system. Others favor a multi-slotted piggy bank with openings for saving, sharing, spending and investing. Still others have set up bank accounts to replicate 401(k)s, matching the amount their children save.
Figures on allowance trends in the United States are scarce, but many experts attribute some of the higher-level discussions surrounding allowances to a turbulent economy, where terms such as "mortgage-backed securities" and "credit-default swaps" are part of everyday conversation.
"Parents have always been interested in teaching kids economic literacy, but what counts as economic literacy has ... become much more complex," said Allison Pugh, assistant professor of sociology at the University of Virginia, who has researched family-based interactions over money.
During a three-year study, Pugh discovered many families had "dizzyingly complex" allowance rules and rituals. Some resorted to spreadsheets and chore charts to track transactions.
Allowance amounts often varied by parental income and what children were expected to buy with their own money. Certain families meted out cash equal to the child's age or the child's age squared. Others used a 25 cent-a-chore star system to determine earned income. One mother in Pugh's study transferred $5 a week into her son's bank account and allowed him to spend 10 percent of the total balance at the end of the month.
The diverse approaches underscore the differing values parents want to teach their children about money, Pugh said.
In one Chicago home, for example, the parents drop a quarter in a chore jar every time their children complete a household task, such as making their beds or matching their socks. The emphasis is on "earning" income. The lesson: Work equals money.
But in another home, chores and allowances are separate.
"We want (our son) to contribute around the house just as a family member, and not begin to wire him that everything has to have a material incentive or quid pro quo," his mother wrote on Ruth's List, an Edgewater online forum.
Sally Wolcott, 50, of Hyde Park, metes out $3 a week to her 9-year-old twin boys, but $1 must go to savings and $1 to their church. The allowance hinges on church attendance, however. No Sunday Mass, no money.
Marvin Applewhite II, meanwhile, thinks of an allowance as a way to protect his children from running with the wrong crowd. Applewhite lives in Chatham and said that when he was growing up in Chicago, people often offered him money to run drugs or act as a lookout. Applewhite gives three of his children $20 a week for allowance to buy everything from toys and candy to school supplies and clothes.
"As long as they have money in their pocket, they're better off," Applewhite said. It "keeps them from hustling on the street."
Despite the myriad ways of meting out money, many parents are stressing savings above all else.
Marty Billingsley, 51, matches the cash her 10-year-old twin daughters put in the bank -- a family version of a 401(k) -- and has considered instituting a penalty for withdrawals.
"It's not immediately satisfying (for them)," said Billingsley, of Hyde Park, "but I want them to have that experience at some point that they need money and they have it in the bank, and that is good."
Malia Beal, 44, also has tried to get creative about teaching her children the significance of saving.
Beal gives her son and daughter $5 a week for allowance, but $1 must go toward charity and $1 toward savings. To emphasize the importance of that reserve cash, Beal took her daughter, 9, to the bank this summer to turn her savings into a certificate of deposit. She also has started reading up on ways to teach her children about compound interest, including adding money to their savings envelopes.
"Saving for the long haul is so abstract," Beal said. "(But) I think the current financial situation underscored the fact that we needed to have these conversations."
Some parents have found other ways to explain the value of money.
Lauren Margolin, 43, lives in Long Grove and finds teaching moments in daily life. A trip to the grocery, for instance, allows a perfect opportunity to compare pricey packages of presliced cantaloupe with less-expensive whole fruit and discuss whether the convenience is worth the extra cash.
Books and websites also abound with financial literacy advice for youngsters, some video games now impart lessons on interest and managing debt, and local classrooms have begun deconstructing the economy.
When Karee Schwartz overheard children in her seventh-grade math classes at Northbrook Junior High District 28 trying to make sense of Ponzi schemes and mortgages, concepts they didn't understand, she and a fellow math teacher decided to teach a unit on budgeting.
They handed out fake paper money to students and required them to write $35 checks for the weekly rent of their desks and classroom utilities. Students who ran out of rent money, earned with good deeds and grades, had to sit on the floor.
"We have to teach fractions, decimals and percents in our classrooms," Schwartz said. "But this (connects) the real-life applications."
And sometimes, in real life, one of the best financial lessons a child can learn is when to skip a good deal.
On a trip to Target, Ryan Evans spotted a candy special: $10 for 10 packages.
At that price, the rainbow Nerds he had his eye on would practically be a steal. But, at his mother's urging, he used his allowance to buy one small box instead.
"It was a good deal," Ryan said later. "But I probably couldn't eat all that candy."
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HOW TO HANDLE ALLOWANCES
Views on money are as different as the people who hold them, but there are several guidelines to consider when teaching children about finance, said Sharon Danes, a professor of family social science at the University of Minnesota.
Allowance systems: The "earned income" approach (allowance tied to chores) more closely reflects the real world, but it can lead to parent-child conflicts. The "entitlement" approach (allowance separate from behavior) may reinforce the idea of money as a shared family asset, but it does not mimic the relationship between work and pay, Danes said.
Dole system: Handing out money only when it is necessary or a child asks allows for great control over spending and flexibility if a parent has irregular income. But it may lead children to believe that there is an inexhaustible supply of cash, Danes said.
When to begin an allowance: Danes advises beginning an allowance when children can tell coins apart, are comfortable with counting numbers and have spending opportunities.
How much should an allowance be: This may be determined by the child's maturity, the items it will cover and the amount that the parents can afford. In a 2010 Tribune poll, the mean weekly allowance that Chicago respondents thought a 10-year-old should get was $6.94. The mean in suburban Cook was $5.29.
Be consistent: Figure out what you want to teach your children about money and how best to do that, then stick to it.
-- Cynthia Dizikes
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