MintFamily with Beth Kobliner: Allowance on Autopilot

In my last blog, I talked about old-school allowance, both the pitfalls my husband and I saw with our system for our three kids and the solution we eventually worked out. (Thank goodness for spreadsheets!)

But there’s a new twist on allowance that has emerged over the past few years: techno money management. Instead of handing kids a few dollars each week, parents—and kids!—can simply visit one of many websites, just as adults manage their own banking online.

Having never used an allowance website with my kids, I was surprised to find there are more than a dozen options. (I recently went on National Public Radio’s Marketplace to discuss this topic—listen here!)

My big question: Do allowance websites make kids more—or less—money savvy? Below are the pros and cons.

Free Sites: Shopping Vs. Saving

At first glance, free sites like Tykoon may seem like the best options. But these sites often make money by encouraging kids to spend their allowance in their online stores, which are full of toys, DVDs, iPads, and other enticing items via a partnership with Amazon.

Kids can also donate money to a charity or reach a savings goal, but I imagine the temptation of those toys would be tough to resist. Each visit to the website is an opportunity to shop.

That said, I’m no Grinch! Kids should certainly use part of their allowance to buy something they want and learn about making choices and comparing prices.

But allowance is also a great tool to teach the value of saving. For parents who use these sites, I encourage you to set up your child’s account so that a high percentage (at least 25%) of allowance goes toward saving.

Paid Sites: Are They Worth the Fee?

On the other hand, sites like FamZoo and Three Jars that charge families an annual subscription rather than run an Amazon-sponsored store may not be worth the fee, which ranges from $30 to $72 per year.

For that fee, all you really get is a glorified “gold star chart” that tracks allowance, since for all the sites—paid or free—no actual money is being transferred online. When kids want to cash out, the money still comes directly from you, either by giving your kid cash (when using a paid site) or using your credit card to purchase an item in an Amazon-sponsored store (when using a free site).

One good deal: Three Jars occasionally offers a free membership for life, no strings attached. You can take advantage if you sign up by December 31, 2012.

Don’t Let Cash-Free Mean Conversation-Free

Although we tend to be a cash-using family, I know that a lot of parents rely on plastic and rarely have cash around, which makes doling out dollar bills each week or each month a bit tricky. A recent survey by public opinion polling company Rasmussen Reports found that 4 out of 10 adults easily make it through the week without any cash at all.

To add to that issue, 8 out of 10 parents say they’re equipped to have the money talk, but a third say they’re just not following through, according to a survey by T. Rowe Price.

My main concern: Allowance sites can be an impediment to money talks, rather than a way to facilitate those conversations. Why talk about saving for a goal or the family budget when you can just automate your kid’s weekly allowance?

Automating saving and bill paying are good habits for adults. But do we really want to automate our kids’ financial education?

© 2012 Beth Kobliner, All Rights Reserved

Beth Kobliner is a personal finance commentator and journalist, the author of the New York Times bestseller “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” and a member of the President’s Advisory Council on Financial Capability. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.