Monday, February 4, 2008 9:51 PM CST
Experts: Allowance teaches financial lessons
By NATHANIEL WEST, Staff Writer
nwest@jg-tc.com
There are no holes burned into the pockets of Neoga siblings Ryan and Olivia Ott.
Instead, the $5 they receive every other week from their mother, Carol Ott, often gets tucked away for later.
“I like to save money for a long time,” said Olivia, 11.
Local experts said this sort of financial responsibility demonstrates that parents can use allowance to teach their children how to manage their money.
But the whats, whens and whys of allowance are rather subjective, and depend on a child’s maturity, said experts from Eastern Illinois University and the University of Illinois Extension.
Parents have to wrestle not only with how much to give in allowance — if anything — but also whether these funds should be earned or unconditional.
“It’s like raising a child; there’s no set textbook for it,” said Linda Simpson, professor of consumer studies at the EIU School of Family and Consumer Sciences in Charleston.
She said allowance is part of “consumer socialization, (the) process by which young people acquire skills, knowledge and attitudes as consumers in the marketplace. That all ties into allowance. It’s teaching them, either directly or indirectly, money behaviors.”
Simpson said allowance affords opportunities for children to make tough decisions. “It’s a good idea to have allowance with choices and tradeoffs,” she said.
Pat Hildebrand, consumer and family economics educator with the U of I Extension in Effingham, said allowance could be a “powerful tool” for helping children see connections between work and money. “It gives a sense of pride and responsibility and reinforces independence while learning the basics of saving and spending,” she said.
Hildebrand stressed that even if allowance is based on the performance of chores around the house, some duties should remain mandatory. “There should be age-appropriate routine chores that the child does that are unpaid,” she said.
Simpson said parents whose children are busy with academics, athletics and other activities might legitimately consider offering allowance with no strings attached. Being a student in particular “is their occupation right now, and if they take that seriously, that’s going to take up a lot of time,” she said.
She added, only half-jokingly, that the pursuit of excellence in school or sports could lead to scholarships for college, in which case allowance “is kind of an investment.”
There’s no specific age prescribed for beginning an allowance, said Simpson.
“I think it’s driven by the child,” she said. “If they’re seeing money as being a bottomless pit, that’s really when there needs to be an adjustment: ‘You have X amount of dollars to spend each week, and when that’s gone, you’re done.’”
However, Hildebrand said the educational effects of allowance are tied to younger children’s ages:
— For 3- to 5-year-olds, a “small allowance” will help them “learn where money comes from,” Hildebrand said. “It also gives parents the opportunity to help the child learn to identify coins by name and how many cents are in each coin.”
— Children ages 6 to 8 “will learn how to make simple change, check out prices of items and begin to learn about saving,” said Hildebrand said.
As for how much to give, Hildebrand recommended a dollar for each year of a child’s age — a 10-year-old would get $10 every two weeks, for example. “An allowance should be age-appropriate and increase over time,” she said.
Hildebrand said other factors in determining the amount of money awarded in allowance include: the total family income; routine and special chores; quality of school work; birthday money and gifts; school lunch costs; the allowance of a child’s peers; and entertainment expenses.
She noted that parents should require some of the allowance money go into savings.
Ultimately, the most important lessons in fiscal responsibility come not from allowance, but from parents’ own spending and saving habits, said experts.
“If you’re out there overspending, your kids are going to see that,” Simpson said. “And it goes the other way. If they see good financial management, they’re going to take note.”
Hildebrand said, “Kids watch how parents spend money. Children’s attitude toward money will be shaped by what they learn from others.
“Despite the heavy influence of their peers, it’s likely they’ll end up the carbon copy of their parents. So before trying to mold them, parents should picture themselves as their children see them.”
Contact Nathaniel West at nwest@jg-tc.com or 238-6860.
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