Do you have children between the ages of 5-15? Then you might consider giving them pocket money. Giving your children pocket money is a great way to teach them about the basics of money. Kids and teens need to learn about the value of money to develop good spending habits. When your children are given pocket money, they have a choice of spending or saving it. They need to learn the consequences of their decisions – like spending their money on sweets instead of saving for a new cricket set – is part of the learning process. Also, teaching your kids about money from an early age enables them to be independent and confident in themselves, as well as being responsible.
There is no specific time or age to start giving your kids pocket money. However, you could start giving pocket money as early as five years old. Teach your kids to understand that you need money to buy things you need and want. They also need to understand that money needs to be earned by work and that making money takes time and effort. If your kid can manage small chores and tasks, you can start giving them pocket money for the jobs they do. This will help them to understand what it takes to earn money, and that work and money go hand in hand.
Start by giving them small chores, like taking out the rubbish or cleaning their room. Encourage them to save the money they earn and set saving goals. When your children are earning their own money, they learn to think for themselves and make the right decisions. Besides, managing things on their own boosts their self-esteem, motivates them and gives them a sense of achievement.
Teaching kids about money from an early age allows them to build good spending habits and learn the importance of saving. Setting saving goals together with your kids teaches them to work for something that will be extremely beneficial in the long term. A good starting point is to save 20% of their pocket money. The 20% could go into a different saving jar to make them understand the difference between a savings account and spending account. Setting goals and working to achieve them also applies in many other aspects of life. It teaches them a good mentality and facilitates growth and maturity.
Make your kids see that hard work pays off, literally. Start small and give your kids chores that suit their abilities and age. Learning about reward via effort is a fantastic mindset. In addition, you could withhold or reduce their pocket money if tasks or chores are not done. This teaches them that they’ll only get paid if they do their work properly and sticking to your agreement.
Give your kids options. They could either spend their money on something small and short term or save it for something they want even more (sweets or cricket set?). If they choose to spend it and then realise they have no money left, it teaches them that decision has consequences. Also, discuss the difference between ‘needs’ and ‘wants’, and encourage your kids to think about these before spending their money.
Managing money on their own can build good self-esteem and sense of achievement. Money management and independency is a part of preparing your kids for adulthood.
How much pocket money you should give your kids is dependent on your family’s situation and finances. There’s no right or wrong amount of money you should give. The point is to teach them money management and principles. You could determine how much they should get by their age, the tasks they are doing and what the pocket money should cover. You could, for example, give them $1 per week per year of age as a starting point. This means, the older they get the more money they’ll have, and with more money comes more responsibilities. Starting at a young age makes you kids more capable of making good decisions and reinforces the importance to prioritise their money correctly. The older they get, the more money they need. A good foundation of financial education facilitates them to handle the money they receive in a sensible manner.
Pocket money could cover various things. You and your children can figure out together what the money can and should be spent on. Some examples of what you can use the money for are:
The foundation of money management and financial education is learnt within the family. However, it can be challenging in our increasingly cashless world. The good news is there is plenty parents can do to teach children the value of money.
Give your kids a visual idea of the value of money. Use a clear jar for your kids’ savings to show them how money can grow and disappear just as fast.
Talk about money and the importance of controlling, managing and saving money. Teach them that they can spend money on fun things, but most importantly, it should provide security if something happens. For example, if something gets broken, it’s important to replace it – and for that you need money.
Set an example! Your kids look up to you more than anyone else. Make sure you exhibit good spending habits and the importance of saving.
Teach them that everything has a cost. They might not know that everything they do and see has a price. Tell them about bills and taxes or perhaps how you manage your monthly payments and how much each thing costs. Be transparent about your own spending and expenses.
Tips to save for big things to come – like a car or a holiday.
Show opportunity costs. This is a way of saying “if you buy this, you can’t afford this”. It would teach them to make better decisions with their spending.
Nothing teaches like experience, and they’ll learn as they go. Give them room for mistakes and give them choices and responsibility. Give your children an appropriate amount of pocket money and let them decide how to spend it. Poor decisions and regrets can teach them valuable lessons. Offer guidance, but don’t control their spending. If they lose money or waste it, think of it as a valuable learning experience for your kids!
The increased use of credit cards, internet banking, and online shopping, means children often don’t see money being exchanged for purchases. By using coins and cash, your kids can see money is a tangible asset rather than swiping away a ‘magic’ card.
It’s harder for kids to understand the value of money and where it comes from if they can’t visualise it.
We have gathered a few tips from the MoneySmart website.
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