RPT-YOUR MONEY-As school starts, parents pay up for grades

Tue Sep 4, 2012 5:14pm IST

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By Chris Taylor

NEW YORK, Sept 2 (Reuters) - When it comes to getting good marks in school, the traditional reward is an old-fashioned pat on the back. But these days some kids are responding to something a little different: Cold, hard cash.

Like the children of Ganesh Subramanian, director of business development finance for French drugmaker Sanofi-Aventis . Last school year he set the bar pretty high for his two boys, Anik and Navin: All A's on a report card, and he gives them $100. All A's, all year - four straight report cards - and the reward gets bumped to $1,000. Just a single B-plus, and that hefty reward is nixed.

"It started out as kind of a joke, but then they actually did it," says Subramanian, of Hasbrouck Heights, New Jersey. "It incentivized them, because they know if they start falling behind in their homework, that could bring one grade down to a B-plus and then they lose everything. So when they come home from school, they always make sure to get their work done."

Subramanian is not alone in linking schoolwork to cash rewards. A study on children and money by the American Institute of CPAs (AICPA) and Harris Interactive, conducted in July, found that fully 48 percent of parents paid out for good grades. The average going rate for an A, among those who dipped into their wallets for superior schoolwork? $16.60.

"I don't see anything wrong with paying for performance," says Clare Levison, a certified public accountant in Blacksburg, Virginia, and a member of the National CPA Financial Literacy Commission. "It's gone on for a long time in corporate America. I think it can be an effective incentive, as long as you're using it as a teachable moment to tell them about budgeting and saving."

It does not have to be just for younger kids, either. Orange County, California, media strategist Mike Nason is a father of five, with his youngest daughter, Chandler, now in college at Arizona State University. She is already 19, but they have still worked out a financial deal: She keeps her grade point average above a 3.0, and he covers her punishing gasoline bills.

It works out to a little over $40 a week, and if her grades fall below that level, the extra financial help gets clawed back. But the college sophomore is doing so well, they have not yet had to cross that bridge.

"Gas is so expensive, I don't know how young people do it these days," says Nason. "So it's been a great motivator."

But some parents are not convinced that cash is the way to go when it comes to getting good grades. Since it is something that kids should be achieving on their own, without any added incentive, rewarding grades strikes some as too much of a crutch.

Palo Alto, California, resident Bill Dwight, a father of five, tried the paying-for-grades idea with a couple of his sons in recent years. A's received top payouts, B's got less, and C's or less resulted in zilch. But after trying it for a year, he realized the system did not bring about markedly different behaviors. So he and his wife scrapped the idea, and their sons' school performance has remained the same as before.

"Our judgment was, it wasn't really improving their scores, and philosophically we weren't in tune with it," says Dwight, founder of the money-management site FamZoo. "But I don't criticize other parents for trying. I say try a bunch of different things, and find out what works for your kid."

So how can you introduce the idea of paying for grades, without turning your kids into miniature versions of Gordon Gekko? Here are some tips from those who have tried it:

* Try paying for habits instead. If the idea of linking cash to grades leaves a bad taste in your mouth, you could always try promoting good studying habits instead. So instead of paying for an A, link your child's regular allowance to a shorter-term goal, like completing homework for the week, which could subsequently lead to that A. "The bad thing about paying for outcome is that if the semester is going down the tube, then there's no motivation anymore," says Dwight. "But if you're paying for a habit like reading regularly or doing homework, then it's never too late."

* Earmark the proceeds for different purposes. Whether allowances are tied to grades or not, it is critical that kids set aside some of their cash for different priorities. Philadelphia's Kelly Whalen, a mother of four and founder of the blog The Centsible Life, does not link schoolwork to cash. But she makes sure that 25 percent of her kids' allowances goes toward savings and another quarter toward charity, in order to teach them fiscal responsibility. "Have them put the money into separate piggy banks or envelopes, so they get the concept at a young age," Whalen says.

* Retain veto power. Giving your children money for grades does not have to mean they can do whatever they want with it. You can retain control, and decide whether they are using it wisely. Ganesh Subramanian's kids, for instance, have not yet touched the $1,000 they each earned last school year. "If they want to spend $400 on a toy or something, I'm not going to allow that," he says. "Maybe when we show them how much college is going to cost, they'll want to move it over into their 529 college-savings plans. It's very important for kids to learn about finances early - and this is one way to do it."

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