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The Give

It’s not just what you give for an allowance, it’s how you give it. A primer.

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The standard formula that many experts recommend for a weekly allowance is a dollar per year on earth. But in New York, the whole amount could easily disappear in a single late-night cab ride. So parents here have to be more creative. We quizzed the experts on the relative effectiveness of various approaches to allowance.

Spoil ’Em Rotten
Kids are expensive in New York. If you’ve got the money, why not just dole out the comparatively trivial amounts of cash they require—$20, or $50, or $100—as they need it?
Pro: Introduces realism. Says University of Chicago economist Austan Goolsbee: “If a kid growing up in New York thinks that a budget is $5 or $10 a week, he might misunderstand what necessities like food and housing actually cost.”
Con: Allowance-on-demand parents will be bummed when they’re still paying rent for their 40-year-old princes and princesses.
Bonus: Eliminates the guilt of indulging your own consumer passions while suppressing theirs.

Make ’Em Work for
Every Dime Reimagine junior as a junior associate at Skadden, Arps, whose days are subdivided into billable minutes. Pay cash for tasks completed.
Pro: A nice introduction to the way the world works. Kids can learn valuable skills by performing household chores. Or take a real job.
Con: Slacker teens may decide to forgo their allowances, thus creating more work for parents. Monetizing parent-child relationships can come back to bite you in the rear in your dotage.
Bonus: Laura Levine of the Jump$tart Coalition says high-school seniors who had to do chores in exchange for allowances scored the highest on a survey of money knowledge.

The Lump Sum
Movie producers and government agencies have to adhere to budgets dictated in advance. Give your kid a nut to manage for three months, six months, or a year.
Pro: Teaches planning and responsibility. And when lump sums cover clothing, they teach youngsters to discern the crucial differences between the fall and spring lines.
Con: It only works if you can say no, says Neale Godfrey, author of Money Still Doesn’t Grow on Trees. When her son lost his wallet in London, a few weeks before his next disbursement was due, “I told him he’d have to figure it out.” He played the guitar on the street with a little cup.
Bonus: In our 24-hour-ATM culture, the lump sum is a reminder that the Bank of Mom & Dad isn’t always open.

Pay for Performance
Life isn’t like high school; it’s like Goldman Sachs. Accumulate credentials and bust your ass, and you’re likely to get rewarded. Pay a small base that is supplemented by bonuses for good grades and outstanding performance.
Pro: The ultimate in incentives. For goal-oriented kids, a monetary bonus can stimulate effort.
Con: Grades aren’t always correlated with effort or work. One child may bust his butt for B’s, while another loafs her way to A’s.
Bonus: Post-deal dinners. “If your kid brings home a really good report card, you can say, hey, we’re going to Mr. Chow’s for dinner,” says Kiplinger’s Personal Finance columnist Janet Bodnar.

The Debit Card
Cash is fungible, and can just as easily be spent on Twinkies and skanky Abercrombie & Fitch gear as on books and presentable clothing. Allowances loaded onto plastic offer an elegant solution.
Pro: “It’s a great way for parents to see where kids spend their money and have a discussion about it,” says Dara Duguay of Citigroup’s Office of Financial Education.
Con: It’s unrealistic to think parents can control kids’ spending when they get older. Teens can do a whole lot of damage before the next statement arrives.
Bonus: Drug dealers don’t accept cash cards. Yet.

The Teenage Economy
In a city obsessed with money, kids are, too. And the choices parents make have powerful effects on the separate, sometimes cruel, world of adolescence.

The Ways & Means of New York Kids
A mini-poll on allowance.


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