Paydirt: Allowance rules, math can be tricky

Like many parents, Joan Healy pays her three teens an allowance. But she's not sure she's dishing out the right amount. "I am struggling with what is a fair and reasonable amount to give a teen per month while not jeopardizing the family budget," the St. Paul mother of five wrote in an e-mail.

I've seen suggestions of paying a child a dollar for every birthday, or $10 a month for a 10-year-old, for example. Healy googled teen allowances and came up with "wildly different advice," she said, depending on geography, income level and expectations about what the money should pay for. Healy's children are supposed to pay for clothes and movies. Some allowances are expected to cover everything from school lunches and text messages to gas and car insurance.

How much is enough? I wish there were an easy answer -- especially in this economy. A survey conducted by Visa in September found that during this recession, 41 percent of parents are cutting back on the allowances they are giving their children.

According to my discussions with moms and dads who also happen to be financial experts, some teens receive a few bucks a week, some are handed several times that. Sara Croymans, a University of Minnesota Extension Service educator specializing in finance, gives her two teens and her seventh-grader $5 each per week. Bridget Handke, a financial planner with KLB Financial in Edina, pays her 17-year-old $30 per week and her 12-year-old $12 weekly. Tom Luing, a financial planner with Capital Management Securities in Bloomington, hands his 15-year-old and 13-year-old sons lump sums of around $100 three times a year and tells them not to spend it all in one place.

While the dollar amounts vary, the lessons that parents hope will come with the dollar bills are the same. Parents want to teach their kids about financial responsibility.

"You've got to let them understand the needs-vs.-wants and feeling regret," said Nate Wenner, regional director for Wipfli Hewins Investment Advisors and a Minneapolis father of three. "Let them know what it feels like to accumulate money."

Some parents have rules for divvying up the sum. Dana Erickson, a financial consultant with Thrivent Financial in Minneapolis, requires her 11-year-old daughter to save 10 percent and donate 10 percent of her $10-per-week allowance. Handke requires her daughters to send 10 percent to charity and put 30 percent in a college savings account "to get them in the habit" of saving and giving. She keeps track of these amounts, as well as money deducted for text message costs and other expenses, in a ledger. She makes a point to show them how all of the deductions take a bite out of their total allowance, much like taxes take a bite out of gross salaries.

Then there's the debate about whether to tie chores to allowances. That's what Handke does. Luing considered this approach, but decided against it.

"I don't want them to think they have to get paid in order to contribute to the family," he said. Most parents I spoke to are in that camp.

Erickson said the allowance is a handy way to stop the begging at stores. Her daughter buys her own lip gloss now. "I don't want her to feel that anything can be thrown in the cart and there was no limit," she said. As experienced parents know, it's a lot easier for kids to spend our money than it is for them to spend their own.

What's tough for parents? Watching their kids make mistakes. Handke witnessed her eldest blow most of her money on ripped jeans and an expensive purse during one trip to the mall for much-needed school clothes. Her youngest once purchased an expensive toy baby carriage that wiped out her savings for an entire year. "It is important for the kids to learn how to manage money and make mistakes," Handke said.

Parents make mistakes too, such as dishing out advances of allowance money for impatient kids without asking for interest in return. Erickson fronted her daughter money once, but decided that wouldn't teach her how to delay gratification. So she won't advance her allowance anymore. "She didn't like it at all, but hopefully she'll see the wisdom of it down the road," she said.