The babysitter learned she had to manage a finite amount of money. It transferred ownership of the problem of endless wants from the parents to the teenager, prepared her for the big bad world and gave her independence.
Motivated by this, the Cowan family produced a spreadsheet including all the things the children would need to spend on.
For tweens and teens, this could include clothing, electronics, mobile phones and charges, subscriptions to online games or magazines, music, make-up, personal care such as deodorant, entertainment costs, snacks, books and hobby equipment.
Working out how much to allocate to each category is tricky. Cowan's daughter argued successfully at a family conference that she needed more money for clothing than her brothers did. Another child might need virtually nothing for clothing, but want a small fortune to spend at EB Games each month.
Parents need to be very clear about what the allowance covers or the children will find ways to undermine the system.
Cowan's children were not just left to sink or swim. His youngest child needed more parental input than the older children and stricter rules about how the money would be spent. Early on the youngster used a portion of his allowance to buy a two-litre bottle of Coca-Cola, which he marked as his and glugged from the fridge. His parents stepped in to say that this wasn't acceptable.
The Cowan family spreadsheet morphed over time to meet the needs of each child. Family conferences were held regularly to discuss what each child had spent.
Children learn from their budgeting errors the hard way providing parents stand firm.
"Oh dear, it's only the 17th and you've got no money left for bus fares. Why was that?"
Creating a liveable budget for children isn't easy. There are endless ifs and buts that go into planning a budget for the children such as:
* How many items of clothing do they need a year?
* Do they pay for their own school uniforms?
* What about sports gear?
* What happens if they lose something that needs replacing?
* What if they won't do their chores?
* What if the child spends inappropriately?
* Should they pay for birthday presents for friends?
* How often will he or she go to the movies or other entertainment?
* Should the allowance be paid in cash or by automatic payment?
* Do parents pay one lump sum?
* How can children handle large purchases?
I don't have all the answers - and would encourage readers to add their own 10 cents to this article at nzherald.co.nz. But here are some ideas I've gleaned in recent weeks by talking to families who give their children budgets, and by Googling ad infinitum.
Clothing: How many pairs of jeans, underwear, shorts, jumpers, trainers, and so on does a child need in one year? A good starting point can be found here: http://tinyurl.com/teenclothingbudget. It lists categories such as undies, shorts, and "sweaters", and suggests the number of items needed per year and a cost for each. Not every parent will consider 10 T-shirts a year a necessity, but the basic template could be tweaked to personal circumstances.
The author of the template chose prices for nice items at cheap shops. In other words, they were for the needs, not the wants. Some children are walking clotheshorses. If they can't do without designer items, they will need to find the money from within their budget, or get clever about the way they shop.
Cowan's daughter developed a healthy interest in shopping at second-hand clothing boutiques.
"She realised if she spent $8 on an item [second-hand] that would cost $48 in the shops she would have $40 left to spend on something else."
School uniforms: These are expensive and some parents will choose to pay for them independently of the child's allowance. The question is what happens if the child loses a piece of uniform. Should he or she pay for replacements? Making that a rule is a great way to encourage carefulness in children (and thriftiness if they can be convinced to buy themselves a second-hand replacement).
Sports gear: This is a difficult one when children have different activities such as sports and music. A new guitar or piano costs an awful lot more than a new pair of soccer boots. Cowan says he bought his children any curricula equipment, which included sports gear and uniforms.
Lost items: As with the school uniforms, items that are lost carelessly could be replaced from the child's own money. That could include bicycles, scooters and so on.
Cowan says the jellyfish came out in him when it came to replacing lost items and he usually paid. There was one instance of a lost pair of shoes where the child had to pay.
Cash or automatic payment: Cowan likes the idea that children get used to handling cash. The act of handing over coins and notes to buy things sinks in.
But automatic payment is easier. The money arrives each week or month at the same time, making it harder for the child to ask for advances. And it could be tempting to say: "If your chores aren't done, the AP is cancelled until you're willing to pay the $2 to set it up again."
One lump sum or splits: Younger children may have difficulty saving for clothes and larger necessities, which could create problems. At a younger age children might be better off with an envelope-style allowance where some of it is earmarked for specifics such as clothing or school bus fares. This could be done in cash, or by AP, with different accounts set up for everyday purchases, clothing, and if relevant a long-term savings account. Whichever way it's done, the spending needs to be accounted for at the end of each month.
Inappropriate purchases: One potential fish-hook is the child who spends up large on unnecessary or inappropriate items and has nothing left for the essentials. As one parent commented on Bogleheads.org: "If they are smart, they will buy the nastiest, rattiest clothes that you can't stand and say, 'But I have no money for anything that looks nice'."
This is all the more reason, as Cowan says, for parents to have some input into decision-making.
Large purchases: After Cowan's children saved $30 towards an item he matched them dollar for dollar. That proved a little costly when one of the teens took flying lessons.
The educational value for a child allowed to manage their own money is great. They must learn how to manage their bank accounts and Eftpos cards. They will learn lessons such as using another bank's machine costs money, says Kiwibank external relations manager Bruce Thompson. They may need advice on how to get around this, such as getting cash back on Eftpos transactions.
They will also need to learn the dangers of writing down their PINs or telling them to friends. Children don't always have the same sense of right and wrong as adults and a child who finds a friend's card and knows the pin may use it to spend money on him or herself.
