Laura Rowley Money & Happiness

I'm trying to instill responsible money habits in my three kids, and something a relative said has lodged in my mind.

This happened when I attended a wake for an elderly family member recently. Irish wakes, at least in my family experience, tend to be spirited affairs, more reunions to celebrate a long life than cheerless communal mourning. After all, we believe the deceased is enjoying a second wind in a better place.

The tribute wrapped up, as they tend to do, in a pub. At this event, a cousin-in-law, whose daughter is a freshman at a university in the south, joked about her somewhat prolific spending habits, compared to his own lean days in college.

She uses a debit card for everything, which is kind of like a delayed Global Positioning System for parents -- they can follow the debit-card trail from the university bookstore, to Starbucks, to the pizza parlor, to the nail salon. Her dad, who foots the bill, says he hasn't come down on her too hard. "She's so far from home, I want her to be happy," he said.

Working Hard for Fun Money

While my husband and I save for college for our kids through 529 plans, it has occurred to me that you can't use that cash for pizza. When I was in college, I paid tuition and books, and my parents covered room and board.

If I wanted fun money, I worked. This was O.K., since I had a job at the newspaper, which provided relevant career experience, and a gig as an usher at Assembly Hall, where I was paid minimum wage to attend all of the University of Illinois home basketball games.

Although my kids are only 8, 6, and 3, I'm already working to teach them responsible money habits, particularly by connecting reward to work. I figure later in life, no one will pay them for simply getting out of bed, unless they're supermodels (you may recall the mannequin Linda Evangelista, who famously insisted, "I won't get out of bed for less than $10,000 a day.") Although I think my daughters are beautiful, their odds of winning America's Next Supermodel are probably close to their odds of playing in the WNBA, which would necessitate Plan B -- the allowance thing.

Incentives That Worked Too Well

Still, I have conflicts about paying for chores. I think of a household as a community, and they need to understand the value of contributing without expecting a handout. So instead of allowance, I instituted a "star system" for my older kids.

They earned a star every time they accomplished a specific task: Getting dressed and ready for school by themselves; making their own breakfast; picking up their clothes; setting and clearing the dinner table; getting ready for bed the first time they are asked; and reading 10 minutes a night. Once they got 50 stars, they could pick their reward -- an afternoon at the skating rink, a visit to the pottery painting place, etc.

My incentive worked amazingly well -- too well. It cost me a bundle. They accumulated 50 stars within a week and a half, and chose a visit to the Build a Bear Workshop as their reward. This set me back $89. Admittedly, $25 of that went to their 3-year-old sister, because leaving her out would result in an eruption somewhat akin to having a sports fan blow one of those power horns directly into your ear.

Don't Be Human ATMs for Your Kids

Desperate to avoid another Build a Bear fiasco, I consulted Kevin McKinley, a certified financial planner in Wisconsin and author of "Make Your Kid a Millionaire" (Fireside, 2002). Like me, McKinley isn't keen on weekly allowances.

"The key is reciprocity -- you have an obligation to somebody who has done something for you," says McKinley, who has three kids. "We say things like, 'Mom made dinner, the least you can do is clean the plate off.'"

He recommends giving kids money for doing very specific tasks, such as leaf raking, and emphasizing the connection between work and the cost of material goods. For instance, a kid may get $5 an hour for raking leaves. When he asks for a $100 bicycle, the parent should point out that it would take 19 more hours of leaf raking to earn the bike.

McKinley also suggests parents avoid becoming human ATMs for their kids. "I firmly believe in putting a limit on how much kids can spend and giving them the freedom to figure out the possibilities and limits of money on their own," he explains.

"For instance, they get $10 to spend on whatever they want. If they want to buy two pounds of sugar, that's all they get. It's amazing -- they become smart shoppers, they're able to delay gratification. If adults feel they have an unending font of money spewing forth, they'll keep spending until the font shuts off -- the same is true for kids."

In the case of my cousin-in-law and his daughter, the college freshman, McKinley recommends they work together and put a price tag on her monthly necessities, including the pizza and Starbucks. "Maybe it's $1,000 a month," he says. "She knows if she spends $1,000 the first day, that's it for the month."

Achieving a Balance

I decided to act on McKinley's advice, removing some chores from the star system, such as setting and clearing the dinner table, since that's part of family life. I added other tasks, such as cleaning the basement playroom, helping their little sister on the computer, and putting laundry away.

They can earn up to 40 stars in a week. For 5-14 stars, they get 25 cents; 15-25 stars, 50 cents; 26-35 stars, 75 cents; and a $1 for more than 35 stars. I'll match any savings account contributions 100%.

I figure this will help instill some money sense, and on their best weeks, I'll only be out $4 -- so I can manage my funds a little more responsibly, too. If you have ideas on how to inspire money sense in your kids, e-mail me at laurarowley.column@yahoo.com.