Teach kids how to handle money

NEW YORK (AP) — Scrawled in big, pink letters across three envelopes are the words “spend,” “save” and “give.” It’s how second-grader Chloe McLaughlin organizes her $8 allowance.

It may sound grown-up for someone who still writes in crayon. But given the state of the economy and runaway levels of personal debt, her parents figured it’s never too soon to teach a little fiscal responsibility.

“We see a lot of people having trouble financially these days, and that made us think about instilling discipline in them early,” said Kevin McLaughlin, a 33-year-old resident of Pine Beach, N.J., who also has two younger children.

Once a casual weekly payment, allowance for many families has evolved into a more structured lesson in money management. Children today might be expected to map out budgets or track spending in exchange for weekly payments as they get older.

For now, the McLaughlins are keeping it simple by letting 8-year-old Chloe decide how she wants to use her allowance. Her decision surprised them; $4 goes to savings, $3 to charity. Just $1 goes toward spending.

With a little bit of guidance, your own child’s money savvy might surprise you. Here are some strategies to make an allowance count:

UStarting: Give young children clear jars, envelopes or piggy banks so they can see their allowance accumulate. This makes the concept of saving tangible.

To provide some guidance, have them divide money into categories, as the McLaughlins did with Chloe.

If you haven’t already, open a savings account for your kids so they can make occasional deposits for long-term goals.

UHow much allowance: The rule of thumb is $1 for every year of their life, meaning a 10-year-old would earn $10 a week. But that baseline might be too high or low depending on your expectations.

UTying it to chores: Tying allowance to routine chores can be an invitation for trouble. It might prompt an expectation of payment simply for making a bed or hanging up clothes. “That should be part of taking care of family,” said Joel A. Larsen, certified financial planner with Navigator Financial Advisors LLC in Davis, Calif.

UAdjusting the amount: Spending can quickly outpace an allowance as your child get older. The obvious way to bridge the gap is to encourage teenagers to get a part-time job.

UTight budget: Don’t feel guilty if you have to scale back your child’s allowance. Having children share in any family cutbacks can be an important lesson, said Susan Beacham, founder of Money Savvy Generation, a Lake Bluff, Ill.-based company that makes personal finance products for children.