Allowance Rules in the Electronic Age

In an era of online shopping with virtual cash, many parents are struggling with two issues, reports the Wall Street Journal: whether to continue giving their kids a cash allowance and how to set up a system that works.

The first answer, in my opinion, is easy: A cash allowance still makes sense. And the second isn't too tough either: The basic rules still work and can be adapted to allowance 2.0.

• Start at an appropriate age. Children start learning about money in school at age 6 or 7, and that's when they also begin to appreciate how far it will stretch (younger kids don't always grasp that). Start with a weekly allowance equal to half a child's age, which you can adjust up or down.
• Don't tie the basic allowance to chores. Some families are incredibly well organized. But in my experience many parents have a tough time keeping track of multiple chores over the course of a week. Even with online chore-tracking sites, the system can collapse under its own weight.
• Instead of attaching the basic allowance to everyday household jobs, tie it to "financial chores." Make kids responsible for some of their own expenses: collectibles, movie tickets, after-school snacks -- or, with allowance 2.0, music downloads and online games.To link pay with work, pay for "extra" jobs as soon as your kids complete them. That's easier to monitor than a week's worth of chores.
• Keep it simple. When my children were younger, we kept track of their money with a simple checkbook system. Each month I'd record their allowance (plus gift money or other income) in a checkbook for kids. When they wanted money, they'd write me a check and subtract it from their balance. We always knew where they stood.In the Wall Street Journal story, one mother had worked out a similar system for allowance 2.0: She uses her BlackBerry to keep tabs on her kids' accounts.
• Don't accept IOUs from your kids. Chasing after them to reimburse you has always been a losing proposition, and that's even more true if they've used plastic to buy online music downloads or video games. If the kids want to spend $10 or $20 on, say, iTunes, have them give you the cash first and you can load it on the account. It may cost you a little effort, but the lesson is worth it.

Next week: What about prepaid debit cards?

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