Nickel and Dime Them - Wisely

As any parent knows, kids have a seemingly endless need for money, but as a growing number of parents have discovered, how kids receive the money plays a crucial role in their lives, both now and in the future.

They face financial pressures unknown to their parents when they were children - in part from a changing world, in part because of their extraordinary wealth.

Their "allowance" is staggering: $28 billion in annual income for children 4 to 12, says James McNeal, marketing professor at Texas A&M University. They spend $24 billion of it and save another $4 billion.

So as consumers, they wield enormous clout, a fact not lost on the giant corporations of the world, eager to sell them computers, games, skateboards, clothes, toys, etc. Within their homes, they increasingly influence family purchases - for example more than $17 billion in new-car purchases a year.

Mr. McNeal calls it a "filiarchy," where the kids call the shots.

Little wonder, then, that it is important that children learn how to make realistic and thoughtful choices with their wealth.

According to research by Merrill Lynch & Co., children who learn early about financial management save significantly more money later in life than children who do not.

Other studies suggest a connection between a grasp of money management and adjusting to the demands of adult life - building a career, owning a car, independent living.

The basics are simple, says Paula Hogan, a financial planner at Hogan Financial Management in Milwaukee. Adults and kids should explore together the concepts of money management, she says, with an emphasis on using it responsibly.

"Unfortunately, clients come in all the time with older, adult children still living at home, [not] even trying" to deal realistically with financial issues, she says.

Parents should start when the kids are young, she says.

Gretchen and Michael Stock of Madison Heights, Mich., for example, have two children - Cooper, 5, and his sister Cassidy, 8. The Stocks roll out the usual adage - "money doesn't grow on trees." But they also move beyond generalities, says Gretchen Stock, to emphasize that money is "a tool" for reaching personal goals.

"We encourage them to make good choices," says Stock, who works at a private grade school in Madison Heights.

Her daughter, for example, recently wanted a computer game for around $70. "I told her I'd put in one-half if she put in the other half," her mother says. Cassidy took her money, in part from a Christmas gift, and bought a Garfield book instead, says her mother.

The Stocks (dad is an art director) also encourage their children to use money to benefit others: At Christmas, for example, Cassidy found a dollar bill on a shopping trip. Instead of spending it, she gave it to a bell-ringer.

"She was aware that she was helping others," and that recognition "gave her a sense of satisfaction," says Stock.

The Stock children receive small allowances. But the money, says their mother, goes into separate accounts: some into long-term savings, some into medium savings - for needs such as clothing - and some goes for wants, such as candy or games.

Whatever the children's ages, they and parents can take a number of steps to acquire financial awareness, experts agree. Among them:

* Open a passbook savings account. Children should be encouraged to make the deposits and frequently review the total amount in the ledger.

* Establish a simple budget. Most children have some money, whether from gifts or small jobs. List savings and spending priorities.

* Develop a spending plan that differentiates needs and wants. School supplies and transportation might be needs. But an expensive computer game is probably a want. Show children how to save on a regular basis for their wants.

* Familiarize children with the world of finance - investments, savings, and spending (making good choices). Talk about them.