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Tie kids’ allowance to ‘financial chores’

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In an era of online shopping with virtual cash, many parents are struggling with two issues, reports the Wall Street Journal: whether to continue giving their kids a cash allowance and how to set up a system that works.

The first answer, in my opinion, is easy: A cash allowance still makes sense. And the second isn't too tough either: The basic rules still work and can be adapted to allowance 2.0.

Start at an appropriate age. Children start learning about money in school at age 6 or 7, and that's when they also begin to appreciate how far it will stretch (younger kids don't always grasp that). Start with a weekly allowance equal to half a child's age, which you can adjust up or down.

Don't tie the basic allowance to chores. Some families are incredibly well organized. But in my experience many parents have a tough time keeping track of multiple chores over the course of a week. Even with online chore-tracking sites, the system can collapse under its own weight.

Instead of attaching the basic allowance to everyday household jobs, tie it to "financial chores." Make kids responsible for some of their own expenses: collectibles, movie tickets, after-school snacks — or, with allowance 2.0, music downloads and online games.

To link pay with work, pay for "extra" jobs as soon as your kids complete them. That's easier to monitor than a week's worth of chores.

Keep it simple. When my children were younger, we kept track of their money with a simple checkbook system. Each month I'd record their allowance (plus gift money or other income) in a checkbook for kids. When they wanted money, they'd write me a check and subtract it from their balance. We always knew where they stood.

In the Wall Street Journal story, one mother had worked out a similar system for allowance 2.0: She uses her BlackBerry to keep tabs on her kids' accounts.

Don't accept IOUs from your kids. Chasing after them to reimburse you has always been a losing proposition, and that's even more true if they've used plastic to buy online music downloads or video games.

If the kids want to spend $10 or $20 on, say, iTunes, have them give you the cash first and you can load it on the account. It may cost you a little effort, but the lesson is worth it.

Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95). Send your questions and comments to moneypower@kiplinger.com.