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Book Review

Making Allowances (formerly Allowances: Dollars & Sense)
by Paul W. Lermitte
reviewed by Marco den Ouden

Originally published at About.com - Oct. 14, 1999
This article is also available at Stocknowledge

"I like girls who wear Abercrombie & Fitch..." - popular song

The tween set, particularly girls aged 8-14 now control a huge amount of disposable income, according to recent news reports. And some savvy retailers are homing in on this lucrative market. When Abercrombie & Fitch re-invented itself as a hip, trendy fashion designer for the younger set rather than as a stodgy British fashion house for the outdoorsman, the business revitalized. Currently La Senza, the lingerie company, is establishing a line of La Senza Girl stores coast to coast geared specifically to the 8-14 market.

The retailers know kids have cash, but have parents taught those kids how to be smart shoppers? How to control their spending? How to handle money? Probably not! And that's where Paul Lermitte's new book, Allowances: Dollars and Sense, comes in.

We live in a consumer driven society where spending beyond your means is a commonplace. And just as Paul Lermitte, a professional financial planner, works at helping adults cope with their finances professionally, his book aims at accomplishing the same with our kids. It's a good read.

The book is straight forward and well laid out with 19 short chapters covering everything from the young child's first allowance through helping an older teen learn the importance of setting goals and dreaming big dreams.

Each chapter sets out three major goals and a time frame in which to accomplish them. It then discusses the subject in some detail introducing some principles for guidance. And finally it gives you some tools to help achieve the goals and summarizes the chapter in point form.

For example, the first chapter, The Allowance Contract, puts forward these three goals:

  1. To introduce your children to the value of money.

  2. To teach your children the basics of good money management.

  3. To begin a lifelong habit of saving money.

Lermitte suggests drawing up an Allowance Contract with your child. The contract should emphasize certain principles - a promise to your child to give them a certain amount of money at specified intervals, and a promise by your child to save part of it and not to nag you for more after she's blown the rest. The contract should be followed consistently and firmly. And the allowance should not be tied to chores. Allowance shouldn't be used as a bribe or withheld as a punishment. The purpose of an allowance is to teach sound money management principles.

To help implement the contract, Lermitte includes one in the book to photocopy, or you can download one at his Making Allowances website.

In fact, Lermitte includes a lot of handy forms to copy from the book or download from the website. These include a Loan Contract and Loan Repayment Planner, an Investment Plotter, a Business Planner Form (so your kid can make that lemonade stand a going concern), a Teen Purchase Plan Form for older kids, a Cash Flow Form and a Critical Wishes Form.

Sounds like a lot of paperwork to me! And I don't expect everyone reading the book will implement all of its ideas exactly as shown. But the book is chock full of good ideas and parents can improve their children's understanding of money tremendously by using some of them. I know that I wish I had thought of the contract idea when we first started giving our kids allowance.

The book covers a wide range of topics including entrepreneurship for young people, investment and the stock market, respect for other people's property as well as their own, how to borrow wisely and repay debts promptly, involving children in some major family purchase decisions, understanding how to separate facts from hype in advertising, and how to set goals. It even covers contingencies such as how to manage a child's financial education after a divorce.

The thing I like best about the book is that it credits the child with enough intelligence to trust him with making decisions on his own. Allowance should be, to a certain extent, mad money. Money the child can spend as he wishes without lectures and raised eyebrows from Mom and Dad.

Of course, some limits can be set. Lermitte draws the line at letting your teens buy cigarettes, alcohol and drugs. And some parents may want to restrict such things as body piercings and tattoos. But beyond health hazards and bodily harm, Lermitte believes you should let your child make his or her own mistakes.

If the child buys a shoddy product, he'll learn to choose more carefully next time. If he blows his cash on candy the first day and then sees something he really wants but he's now broke, he'll learn to not give in to impulse buying. If the child is sheltered from such errors, she won't learn to avoid them.

The ideas in this book will last your child a lifetime and may save him or her from some of the traps so many people fall into when they reach adulthood - failure to save and over-extension of credit. The book has given us a slew of new ideas to introduce to our children. Read it, implement it, and your children will profit from it!

I heartily recommend this book.


Contents copyright Marco den Ouden       All Rights reserved
Typewriter graphic courtesy Stockfreeimages.com