Allowance 2.0

Imagine my surprise when I picked up my daily newspaper a few weeks ago and read that the traditional cash allowance is dead, a victim of the electronic age. Seems that with kids spending so much on digital entertainment -- music downloads, online video games, eBay auctions and just general stuff -- cash handouts are "pointless."

Like, whoa. I'd suggest that far from being pointless, teaching children to manage actual cash is more important than ever.

Electronic payments may be great for banks, online retailers and sometimes even parents. But kids are still kids, who don't really grasp the idea of money unless they can see it and feel it. If you spend it with the click of a mouse, it isn't quite real (as even many adults can attest).

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Nor, for that matter, is plastic. Kids don't necessarily draw a distinction between prepaid cards, debit cards, credit cards -- whatever the card, it's still just an easy way to spend money.

Even in this electronic age, you want to teach your kids certain financial values. They need to know, for example, that Mom and Dad aren't endless sources of money in any form.

That means they need to learn how to make spending decisions with their own money. Kids will spend unlimited amounts as long as the money is yours. When their funds are on the line, it's a whole new ballgame. And the best way for them to appreciate what it means to spend money is to see the big empty in their piggybank or to feel it in their wallet.

So how do you reconcile that with the new reality of kids spending money online? Not (as several parents in the newspaper story said they did) by giving your kids carte blanche to use your credit card to make online purchases. One mother complained about trying to sort out her 14-year-old son's various credit-card charges -- especially when he and a friend started downloading songs at 99 cents apiece. "It's killing me," she said.

There's an easy solution, Mom: Take away the credit card. In the "old days" of a cash allowance, parents weren't obligated to pay for everything their kids wanted, and they're not obligated now.

In fact, most of the old allowance rules still work, and others can be adapted to Allowance 2.0. That's certainly preferable to parents throwing up their hands and giving up on spending limits altogether.

Next week: Rules for Allowance 2.0 in the electronic age.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.