Learning to stretch a dollar is a lot easier if the lessons start early in life.
Many parents are discovering that for themselves these days, and are paying some of their own hard-earned cash to teach children about managing money.
Among the books on investing and saving your way to riches that line the bookstore shelves, there is a growing number of books aimed at making better savers and money managers out of children. And Penny Power, the child-oriented magazine put out by Consumers Union, which also publishes Consumer Reports, is enjoying a healthy circulation.
For most children, the basic source of money to manage is the allowance. While opinions on ages vary, most experts agree that before the age of five or six, a child is usually not able to understand the uses and responsibilities of money.
But once the allowance is started, parents should think of it - and teach their children to think of it - the same as they do their salary from work. This means it should be given on a regular basis; children should not have to ask for it; the amount should be set and maintained for several months to a year; and increases should be granted on the basis of both the child's age and increased responsibilities in the home.
Then, there is the question of how big the allowance should be. In a corporation, employee salaries are based in part on the company's income, the duties performed by the workers, and the prevailing wages for similar jobs in the area.
In a family, some of the same logic should apply. So when a child says ''all the other kids have more money than me,'' parents can determine whether the complaint is valid. First, it may be time for an allowance ''review'' to make sure the money reflects the child's age and responsibilities, what the money is expected to pay for, and whether it has kept up with inflation.
In some families, an allowance is supposed to include money for more than just candy, games, and records. Sometimes, it must be used for school lunches, public transportation, or church contributions.
Parents can also check with the parents of some of those ''other kids'' to see what they are paying. Even if they are paying more, however, you may feel your child's current allowance is enough. In this case, it may be time to discuss the differences in family incomes and life styles, as well as a lesson in the futility of ''keeping up with the Joneses.''
Also, the allowance should not be used as a reward or punishment. If the child is not meeting his or her responsibilities, this can be discussed and an adjustment made at the next ''review.''
Most experts agree that allowances work better than handouts, simply giving the children money now and then. A regular allowance gives the child something to plan on, so they can learn to set something aside for a particular purchase or get into a regular savings program.
In a saving program, children probably should have savings accounts of their own. A passbook account in the child's name (with a parent's name on it also), is a good way to start. Deposits and withdrawals of any size can be made at any time. As the savings account builds up, part of it can be moved to higher-yielding accounts like a money-market fund or one of the new bank ''money market'' accounts. Also, that old stand-by, the US Savings Bond, is a much better deal than it used to be, paying flexible interest rates that are pegged to current US Treasury security rates.
Once the allowance is started, parents should not keep too close watch on how it is spent. Children, like adults, will make mistakes in spending. When they do , a bailout is probably not a good idea. Parents can, however, make an advance to be repayed out of future allowances. This way, children get a chance to learn about another common adult financial experience: getting out of debt.
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