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allowances

At the end of every month, 14-year-old Megan Halls can rely on a payout.

The Toronto teen earns her weekly $20 allowance by taking care of her sisters Erin, 10, and Shannen, 8, every day after school. She's been saving in these past months, too. She's put away more than $200 to spend during a trip to Paris later this week.

While her mother is cutting back on household spending, Megan's allowance isn't going anywhere.

"She works for [it] I would have to pay far more for child care [if she didn't babysit]so it's not something I can quite shirk on," says Lianne Seal, a 39-year-old single mother who works in accounting at Queensbury Securities Inc. in Toronto.

As parents trim household spending to manage the bottom line, the kids' allowance has maintained its place in the family budget. But it's no longer just a dole-out to keep them happy. The allowance has become part of a child's financial education.

Ms. Seal, for instance, uses it to teach her daughter to spend smarter. "I say, for one thing, stop buying frivolous things you don't need that we have in the house, like junk food, and just start thinking about how you want to spend your money," she says.

Other parents are scaling back as they weather a layoff or face mounting expenses.

But parents who are not in dire financial straits and just cut off the allowance to prove a point are asking for trouble, experts caution.

"It's totally the wrong message," says Paul Lermitte, a financial planner based in Richmond, B.C., and author of Allowances Dollars and Sense . "That's demeaning: That's a negative attitude about money in their whole life, and in their futures, too. It introduces a fear of money, that it can be taken away like that."

Parents are limiting their kids' spending opportunities by taking fewer family trips to the movies, to the mall and to restaurants, Mr. Lermitte says. But he's also seen parents delay starting their children on allowances as a means to save cash - a move he feels will stunt a child's financial education.

"I don't cut the allowance off quite as aggressively as some would because I think it's still a tool," he says. "We want them to spend, because by spending they learn how to make choices. And as you and I know, choice is critical to our development in making good [decisions]for the rest of our lives."

He says parents can teach fiscal responsibility by splitting allowances into three categories - one for spending, one for saving and one for donating to charity, then helping kids decide what percentage goes where.

Evonne Whelan's sons are not learning recession lessons through cuts in their allowances, but through general trims to the household budget such as skipping on a big vacation this year.

Ms. Whelan, a 43-year-old real-estate agent in Calgary, says her sons Jack, 17, and Tom, 15, still get $30 a week each. She thinks cutting their allowances would generate unnecessary "fearmongering."

"Certainly I didn't go at them hard in terms of making the recession part of their allowance issues, because they're kids," she says. "While they need to understand how economies move and change, within their world they don't. They buy small things, they buy simple things, they save for certain items."

But families that are really feeling pinched - ones that may have endured a layoff or a hefty pay cut - can reasonably scale back on the allowance, says Gail Vaz-Oxlade, the Brighton, Ont. -based host of Til Debt Do Us Part , a financial makeover show on Slice TV. If they do so, parents should be ready with some solid justifications, she says. By clearly explaining why the cutbacks must happen, they're also teaching the kids how to manage their expectations.

"In terms of the allowance, at some point you have to talk to your kids about what they can reasonably expect. If I'm not working, my kids can't expect to get an allowance. There is no money," she says. "It is way better to be honest with your kids and create realistic expectations than to try to maintain an image."

Just a few weeks ago, Tracey Short chopped her six-year-old son's weekly allowance in half, from $10 to $5. Her husband Randy took a buyout from General Motors in January, and the former stay-at-home mom started her own business as a real-estate photographer. Ms. Short, 36, realized not only that the $40 a month they were giving to Mason could help pay the bills, but that it was a lot of cash to be handing a six-year-old.

"Before, $10 a week wasn't a big deal. Now it's a big deal," she says.

It was also about lowering her son's sights. If he expects $10 a week now, will he expect $50 by the time he's 10, she wondered.

Mason wasn't pleased when she broke the news, but he's come around.

"Mason just [made]this face, the scrunched-up angry face he makes," she says. But she did her best to explain that "we're part of a family, we're all making sacrifices."

Meanwhile, Megan Halls says she's become more conscious of how she spends her weekly dole-out. She's even shared a few tips with her Grade 9 friends to help them stretch their allowances, such as waiting until an item goes on sale before buying it.

"They're always, like, 'Megan, that's a great idea! I saved so much more money and I bought something else with it too,'" she says. "It usually works out."