Dear RFFK....

Do you have a question or dilemma related to kids and money you would like our RFFK Specialists to address? Send an email here and if your query is selected we will both respond to you directly and share the Q & A with other parents, in an anonymous way of course.

Here’s a query that came to us from a mother with a 16 year old who wanted a clothing allowance but didn’t want to work for it.

RE: Query. What is a fair or realistic budget amount for clothing for a family with an income of $300,000?

Whether your annual income is $300,000 or $30,000, the response is pretty much the same:

One of the most common questions I get from parents is, “How much?” How much for an allowance? How much for clothes? They often follow that question with more information that tells me the ‘how much?’ question isn’t at the heart of the issue.

Indeed, parents’ concerns, though expressed as a question of “how much?” often are not just about the money, but about how to raise great kids—kids who exercise good financial judgment, who master financial skills that will serve them for a life time and who understand that life is not just about them, but about how they function in the context of family, friends, community.

So to the question of how much, I often respond: Back up! Back up, that is, to the bigger questions about what kind of child you are trying to raise and the smaller questions will be easier to answer.

After raising the question of “how much,” in your e-mail, you raise more basic issues related to values and attitude: She has informed you, “there is no reason for her to work.” You also mention that, “You would like to see her develop a good work ethic.” And you describe her as having been “resentful and bitter when you reduced her clothing allowance.”

What you describe is a young woman seeking independence, who has confused your income and lifestyle with her own. So first some basic information that may help you ‘reboot’ her financial education!

1) There are 10 Money Skills every child needs to master by the time she is 18. The Ten Basic Money Skills:

• 1. How to save.
• 2. How to keep track of money.
• 3. How to get paid what you are worth.
• 4. How to spend wisely.
• 5. How to talk about money.
• 6. How to live a budget.
• 7. How to invest.
• 8. How to exercise the entrepreneurial spirit.
• 9. How to handle credit.
• 10. How to use money to change the world.

Without a mastery of these skills, kids are unprepared for the independence their bodies—and the world around them-- are telling them they want. You may have to help her retrace her steps to master these skills. (This can be tedious but it is doable.)

2) An allowance is not a salary or an entitlement; it is a tool for helping kids learn how to manage money (save, spend, earn, invest, give away).

You may need to print this mantra on a poster and put it on the kitchen refrigerator or give it to her on a t-shirt. But as Bill Cosby put it to his fictional son Theo in an episode in which Theo also made the claim that his parents could afford to support his lifestyle: “Your mother and I have money. You are poor!”

How kids learn to manage first their allowance, and then additional income (gifts, earnings, trust income, etc.) will be a significant factor in the development of their character and values. The research is pretty conclusive: parents who subsidize kids without making them accountable tend to raise financially dependent kids.

3) Working is not just about earning money to spend; it is about developing habits of discipline, assuming responsibility; acquiring experience.

While working more than 15 hours a week is too much for a student with heavy study loads, learning to manage time for school, work and leisure will help prepare the child for successful independence while at college.

The three statements above can help establish a clearer set of expectations and guidelines for your kids regarding money. If you and your spouse agree and communicate these values—in a consistent, unambiguous way (over and over, you may need to send them an e-mail once a week for a year or so to remind them:), they will, eventually hear you. And in the context of these values, your expectations will make more sense.

Often I hear the following from affluent parents: “My kids KNOW we can afford to give them anything they want. I feel foolish and dishonest suggesting otherwise, but I don’t know what to say and know I don’t want to raise kids whose only interests are material.”

To them I tell this story: Whether parents are poor or privileged, they can generally afford to keep a case of candy bars in their pantry. They are, we might say, wealthy with candy bars. But when their kids say, I want all those candy bars NOW, the parents don’t hand them over—even though they COULD. They don’t because they know that candy bars in moderation are OK, an excess of candy bars results in a sugar high, dental bills, and obese kids.

Just because wealth is available it not a good reason to give kids whatever they want; indeed, because you can is often a reason to explain why you won’t.

With these ideas in mind, here are a few actions to help you get you’re your kids on track for financial fitness:

• Create an annual lifestyle budget with her (let her take first crack at it alone if she wants). Begin by creating a line item for all the ways she spends money: clothes, transportation, food, entertainment, technology, special interests (horse riding, skating, etc.); education; special events (proms, trips, etc.); gifts for others, savings, charity (these last two must be line items). Make sure everything is included—and that you agree the numbers are fair. In some cases you may need to set limits: does she NEED a dozen pairs of shoes a year or are you willing to budget four pairs that come out of her clothing budget and any additional she will need to earn and save for?) Tally up the list for her annual total.
• Now create a list with three columns: what you expect her to pay for out of her allowance (she must save and contribute to charity from her budget); what you will pay for through the year; and what the ‘stretch factor' is—that is, what may not be covered by either you or her allowance that she will need additional funds for.
• Now create an income stream. Include allowance (again with the mantra above), expected and hoped for gifts (birthday, etc.), earned income, trust fund income if applicable. It must all go in the pot. Kids who learn early that gifts from grandparents or tax windfalls are ‘exempt from’ financial planning, can develop a magical attitude towards money later on.
• Once the year is laid out visually, you can explain that if she manages her budget responsibly for 3 months (balancing her checkbook; saving regularly, putting money aside for charity, staying within budget, you will increase the amount she will have to manage in the next quarter. There will be a direct correlation between how she manages her money and how much independence to spend that money you give her. Then stick to it—and when she wants a dress for special occasion; or a new cell phone, or money for a movie and dinner with friends, whatever, the first question you need to ask is, is it on the budget? And if not, start saving for it. You can have agreements about what percentage of items on a budget you will pay for (maybe it’s 50/50 for clothes and 25/75 for horse lessons), the idea is to bring home the reality of how money is earned and managed. Make sure you have a quarterly review of the budget and how she is doing. Make sure you give praise where do and do not use the allowance as a form of behavior control or punishment. Stay focused on financial management and the rest will take care of itself!
• Optional: Some families find the following exercise effective. Sit down with your kids and go through all the family financial obligations. Whether your income is $30,000 or $300,000, kids often have little awareness how quickly it is allocated. Walk through a month. Begin with the income for the month. Then subtract taxes; then insurance, housing costs, then utilities, etc. Make sure you list savings, retirement, charities and any of the things specific to your family. (Families who use this exercise have found that if they communicate that sharing this information is an act of respect and that maintaining the privacy of the family is a requirement for sharing the information, find that kids 13 and older rarely have a problem holding the family information in discretion.)

If there is significant income ‘left over’ that your kids want to claim (you can afford to give me a bigger allowance!) Make sure you explain that retirement, savings, philanthropy, whatever your own issues are, are choices you are able to make because you do manage your income. And that you are helping her get to a point where she can do the same.

This may be particularly true if she is expecting a trust fund to support her lifestyle. Kids who ‘check out’ financially because the believe they ‘don’t have to think about those things’ tend to suffer later with issues of low self esteem, ill-defined life purpose; and in some cases of course, real survival issues when the ups and downs of life (failed economies, death, illness, divorce, etc.) find them unprepared for managing their lives and creating their own safety nets.

Now back to the original question: “What is a fair amount for clothing for a family with income of $300,000?

I hope now you can ask the other questions that go with that first query:

• What are the values you hold as a family? Providing clarity on what the family financial values are is fair; supporting your daughter’s financial values if they are different from yours (more is moreJ ) is what she will be able to do one day if she masters the Ten Money Skills, but not what she is entitled to expect from you,
• What are the competing claims of the other family members? Helping your kids understand the needs of all the stakeholders in the family (do you want to go back to graduate school someday? Do you have another child with either a special gift or challenge to support? Are grandparents facing declining health and increasing health costs you may have to help subsidize?) Another challenge with kids is helping them grow through the egocentricity of their age. That is, as they are taught to understand that each family member must share in the obligations and responsibilities of family, they can begin to transcend their own sense that ‘it’s all about me.’
• And again, what kind of kid do you want to launch and have you communicated those expectations? You daughter’s goals may not, right now, be the same as yours. But you may be her best shot at developing the kind of financial foundation that will serve her securely for a lifetime. Just as you helped her learn to walk and talk and eat, providing an appropriate developmental learning experience is part of the task of being a parent.

Well, I have gone on too long. I hope you find some of what I have shared useful. Please keep me informed about your journey with your daughter, what works what doesn’t. The main thing is not to give up on her—even when she makes it a challenge! Financial literacy is economic self defense—and the adults in her life must help arm her for her own defense as she becomes an independent Dollar Diva!

This query is from a couple wondering if they should handle allowances differently for each child.

RE: Query. We have three kids, all on an allowance. My oldest (14) saves most of her allowance and is generally responsible. My middle child (12) can't keep any money in her pocket, and my son (11) hides every penny he gets and asks for things his allowance should cover. I know we need to handle their allowances differently, but the days are short and I run out of time. Any suggestions?

Handling your three kids differently may be part of the problem.

Managing money well embodies the same principles whether you are a spendthrift, a hoarder, or a giver (see Raising Financially Fit Kids , Chapter 1.) One finding in the research done by Stanley and Danko for their first-rate book The Millionaire Next Door, is that parents often spend so much time focused on the ìproblem child,î they enable that child to maintain bad habits, while the more responsible child, left alone to be responsible, gain strength and self confidence.

Here are suggestions from other parents that we thought were helpful:

• We've turned allowance management into a family competition. Kids who stay on budget get a special memorable experience each month. Last month my youngest and oldest went on a weekend bike trip. The middle child stayed with an aunt. He had a chance to earn money by helping her clean out a garage and clean up after a dinner party. Humiliation is not a consequence for being off budget, but an expectation for compensatory behavior is. Though the kids grumble, they work hard to stay included in our family adventures. Russell K., Colorado

• We were worried our adult children were passing on their bad financial habits to our grandkids. We told our grandchildren (ages 8-19) we would make a savings deposit of $5,000 to each of their accounts if they could demonstrate good financial habits from one birthday to the next. We took the kids away for a weekend and helped them each create a budget. Of our seven grandkids, four responded well and got the $5,000. One child ignored us and the other two improved their habits a bit. We gave them each a partial deposit. Though their parents were resentful at first, they have come to appreciate the help and are now working on their own financial plans. Annalee and John S., Los Angeles

• I am in charge of paying the family bills–often a stressful responsibility–but I decided to share the burden and turn that time into “family money morning.” The kids fill out a form explaining where they spent and where they got money. I show them the electric bill and ask them how we might reduce it and they tell me what they have been up to. I feel less burdened and alone and they get more attention from me. Lucy R., Texas

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