Say goodbye to the Bank of Mom and Dad

Tired of being your teenagers' ATM? Stop the handouts and put them in charge of managing their own money.

By Dan Kadlec, Money Magazine contributing writer

(Money Magazine) -- When my kids were young, few parental acts gave me greater pleasure than springing for a surprise trip to the video arcade or some other occasional splurge. This simple act inspired instant delight and gratitude and, to me, was priceless.

But my kids are teenagers now, and my shelling out has become so frequent and expected that it has lost all intrinsic value. So I recently resolved to get out of the business of digging for $20 bills every time our son and two daughters head off to the movies or mall and put my children on a budget.

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Dan Kadlec is co-author of "The Power Years," a guide for boomers. E-mail him at boom_years@moneymail.com.

Like most families, ours has experimented with various allowance systems for years. We've handed the kids cold cash on a regular weekly basis and told them to make it last. We've paid for chores and grades, and even awarded spot bonuses for taking appropriate risks on the field or for simple unprompted acts of kindness and generosity. We've tracked their allowance, chore and gift money in a ledger, then given them money when they've asked for it and deducted the amount from their balance - in essence, serving as the Bank of Mom and Dad.

This patchwork system of providing the kids with spending money worked fine when they were little and $5 or $10 a week easily covered their obsession with Pokémon cards and Beanie Babies. But now they're into iTunes downloads, cell phone upgrades and on-demand viewings of "Jackass: The Movie." Their "needs" include iPods, fashion-forward clothing and, yes, the occasional repair of a front bumper or rear taillamp.

One day my oldest daughter, who is 17, drained the family loose-change basket on her way to Victoria's Secret. That was my personal tipping point; neither one of us wanted to talk about what she was shopping for.

Look, I want my children to dress nicely, enjoy a few cool gadgets and drive a car with working lights. And I'm willing to pay for those things - up to a point. But I finally realized that my ROI (return on involvement) stank. That grateful glance I used to enjoy was long gone. I often felt inconvenienced by having to run to the bank on their schedule and, more critically, they weren't learning anything about how to manage their cash flow. No matter what, it seemed, our children continued to behave like...teenagers.

Finding a solution hasn't been easy. Here are some basics that helped us sort out our teens' budgets and may help you:

Make them pay

Instead of doling out cash on an as-needed basis, we decided to give the kids a set amount each week to cover their spending needs - similar to the allowances they got when they were younger, only with much larger amounts and greater responsibilities on their part.

The idea was to give them enough money to cover their needs and some of their wants, but not so much that they could afford everything they fancy. And once the cash was in their hands, we would step out of the picture entirely.

Our first challenge was figuring out how much to give. Since our oldest daughter is only a year ahead of my son in school, they expected to get the same amount. Yet their needs are vastly different. She likes to shop for great clothes, go to concerts and hang at the local teahouse with friends. He would happily wear the same pair of cargo pants every day, spends time with pals in places that don't cost a dime and finds his refreshments at home in the fridge.

We settled on giving them both $50 a week, which we determined by looking at a typical two weeks of our oldest daughter's spending and subtracting any items that we'd continue to pay for. But we plan to put part of our son's allowance out of reach; he'll have to talk to us when he wants to spend it. Our youngest child's spending is still fairly simple. We figured she can easily get by with a flat $20.

For now we're paying weekly. We plan to go monthly with the older two as soon as we think they can handle the greater budgeting demands, and to move to twice a year when they enter college. "By then they should understand there is only so much money," says Jon Gallo, co-author with wife Eileen of "The Financially Intelligent Parent." Kids who are forced to budget in high school, Gallo says, are much less likely to get into debt once they get to college, where they're routinely swamped with credit-card offers.

Set the ground rules

Key to our new system was determining what expenses we expected the kids to cover - and then communicating those expectations. We opted to keep paying for routine needs: school supplies, basic clothing, fees for school activities, even gas in the car. (We share cars.) But designer clothes, game systems, dinners out and most other expenses are theirs to pay for - or do without.

We don't make the children do chores to earn their money. Although some parents believe that's a good way for kids to learn the link between work and reward, many experts believe that tying an allowance to chores undermines the money-management lesson. Our kids still have chores. But we want those to be seen as something they need to do because they're part of the family - not hired help.

Don't play banker

We were determined not to be the cash dispenser for this enterprise. If we handed out the money, the kids would always feel like they could ask for more. So we decided to set up bank accounts for them in which their weekly take would be automatically shifted from my account to theirs.

It was surprisingly tough to find the teen-friendly features I wanted: low fees, a widely accepted debit card, no overdrafts and easy electronic funding. Bank of America came closest, and I opened three checking accounts there linked to my own for easy transfers.

Sure, we could have just signed the kids up for a prepaid debit card designed for teens, like the Allow Card (MasterCard), UPside Card (Visa) or Visa Buxx. They make electronic reloads easy and are widely accepted. But they impose a variety of charges, which may include activation fees of $24, monthly maintenance fees of up to $3.50 and reload fees. That's a lot to pay for a small account.

Stick to your guns

Teens, like the rest of us, learn from their mistakes. Once they're on a budget, it's their job to make it work. That means no bailouts, advances or loans. "If your child runs out of money before running out of week, stand firm or she won't learn anything," says Laura Levine, executive director of the JumpStart Coalition, a nonprofit that promotes financial literacy.

So how are the Kadlec teens doing? I recently asked my older daughter on her way out if she was meeting her friends at the teahouse again. "Are you kidding?" she puzzled, like that was so yesterday. "It's my money now. I'm not going to spend it on tea." Can you see my smile? The kids finally are learning skills they'll need for a lifetime. And now, when I pop for something unexpected, it's special again - and I'm back to enjoying it.

Dan Kadlec is co-author of The Power Years, a guide for boomers. E-mail him at boom_years@moneymail.com.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.