TESS VIGELAND: These days it can seem like kids have everything…so many toys, so many games, courtesy of generous friends and relatives. Do they even need an allowance? According to market research firm Yankelovich Partners around 58 percent of U.S. kids do get a regular allowance. Other studies have put the number lower, at about a third.
We know from our mailbag that there’s plenty of uncertainty about allowances: when to start, how much to give…or whether to give one at all. So we asked Ashley Milne-Tyte to do some investigating.
ASHLEY MILNE-TYTE: If only about half of kids get an allowance, where does that leave the finances of the other half? Jon and Eileen Gallo co-wrote The Financially Intelligent Parent. They say parents who don’t give an allowance usually tell them they just buy whatever their kids need…
JON GALLO: And our response is, “Well that’s nice, but you’re taking away from your child the ability to learn to make choices”
EILEEN GALLO: Giving a child an allowance is an opportunity to help them develop a basic life skill, which is money management.
The Gallos say parents can begin an allowance when their child is around 6 years old. As for the amount, that’s the hard part. You could start a child off on an allowance that matches their age.
That’s what happened to Tommy Beckmann of St. Louis. When he was 5, his mother got sick of him whining for stuff. She gave him $5 in cash each week. Now 12, Tommy says he’s a good saver. But it took some getting used to.
TOMMY BECKMANN: Sometimes when I . . . there was something I really wanted but it cost too much I kinda got really mad because I knew the system was working and that she wouldn’t buy it for me and I’d have to wait two more weeks or so to buy it.
Nowadays, he banks at home. Each Saturday, his mom marks a kitchen calendar with another $5
SOPHIE BECKMANN: So he really now is on a system where I’m keeping an account for him.
Sophie Beckmann admits she’s a natural at managing money. She works at brokerage firm A.G. Edwards. But she says any parent can benefit from handing out an allowance.
SOPHIE BECKMANN: I do think this system has . . . is very efficient and keeps me from spending too much money on his constant requests.
But some parents find it tough not to spoil the kids…even if they have an allowance. Just think of what lurks in the nebulous online economy, like those 99-cent songs from iTunes.
MUSIC: Well everyone knows you’re the one to call when the girls get ugly on the back of the wall.
You can’t pay cash for online songs, so some parents give their kids debit or credit cards linked to their own account.
Janet Bodnar says that’s a big mistake. She’s an editor at Kiplinger’s Magazine and the author of Money Smart Kids.
JANET BODNAR: Anything that is not cash money for kids is not real. They don’t really draw a distinction between pre-paid debit versus debit versus credit, it’s all just kind of magic money, Mom and Dad can top up the card if the card runs low.
She says an allowance should be cash, period: if a child wants to buy something online, they should first pay the parent out of their allowance, then the parent can use their credit card to pay to make the purchase.
But do allowances matter today? So many parents can give their kids almost anything they want. Like the Manhattan mother I spoke to who didn’t want to go on tape. Her daughter wasn’t available to comment because she’s on vacation in the Caribbean courtesy of a friend’s parents. She’s 16, and has an allowance of a hundred dollars a week – and a credit card – so she can keep up with her fashion-conscious crowd.
But Janet Bodnar says just because you can, doesn’t mean you should…
JANET BODNAR: What you have to remember is you are not obligated to pay for everything that your child wants to do.
Twelve-year-old Tommy Beckmann said goodbye to instant gratification as soon as he got his allowance. And he’s thankful.
TOMMY BECKMANN: Because I became a lot smarter in like, money wisdom with spending and saving and knowing like the necessities that I will need and like stuff that I really don’t need but I want.”
Now that he’s come on air to talk about his allowance…maybe he can finally get a raise.
In New York, I’m Ashley Milne-Tyte for Marketplace Money.
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