”If you want something expensive, you should ask your grandparents.”
~Matthew aged 12
Learning about money
‘Money makes the world go around!’ as Lisa Minnelli happily sang in the hit musical “Cabaret” and it certainly seems to be true on more than one occasion, but debt is on the increase and there seems to be more and more demands on your money than ever before so learning about money is an essential life skill for your children in the modern world.
Children need to learn as early as possible the language of money and pocket money is a very useful starting point for teaching them about it.
Children learn their attitudes and values towards money from you, as you are their first role model!
Your child learns a lot by just watching you and how you deal with money. Spending, saving, withdrawing or donating money: they’re all chances to teach your child more of the basics around it.
They also learn about money from the way you speak about it too, so just start to notice how you talk about money in general in front of your kids and decide if that’s really the message you want to pass on to them, regardless of how old they are.
Teaching, guiding and showing children how to handle money is a really worthwhile exercise as it’s also a practical way to develop their sense of independence, confidence and self esteem and you are also teaching them a very important long term life skill too!
Pocket money, regardless of the amount, helps to teach children about having to make choices, about saving up and about learning to wait for things they want. They’ll also learn the hard way about the consequences of misplacing it, losing it, or giving it away!
Today’s children are exposed to the power of advertising all the time and it has a very strong influence on them so it’s important to explain about how advertising can make them want things that they don’t really need or can’t really afford or may just be completely unsuitable. Help your children learn the differences between needs, wants, and wishes as this will prepare them for making good spending decisions in the future.
Your child might get the hang of managing money earlier than most if you take a little time to teach them these important lessons.
When to introduce pocket money.
Did you know that a ‘pocket’ was a small money bag carried from a belt and that pocket money means a small amount of money that is given to someone to spend that doesn’t have to be earned?
Although research has shown that many parents introduce pocket money when their children are about six or seven years old, some parents don’t feel comfortable giving pocket money at all and there are no hard and fast rules just as there are no “right” or “wrong” ways to teach kids about finance and money, just your way. But if you notice some of these things then your child might be ready to try managing some pocket money:
- They understand that you need money to get things from shops.
- They understand that spending all their money today means there is no more until the next payment time.
- They need money to buy school lunches, catch the school bus or to buy a comic. In this case, pocket money can help your child to plan their daily spending so that their money lasts for the whole week.
Ages: 8-13 years
The value of money.
As they get older you can teach them about:
- The value of money and the relative price of things.
- Spending and accepting that money is gone once it’s spent
- Earning and understanding that earning money can be enjoyable as well as hard work, but usually that’s the only way to get it
- Saving and teaching them about investing using short-term and long-term goals
- Borrowing and understanding the importance of repaying borrowed money.
- The differences between cash, cheques and credit cards
- When using a credit card at a restaurant, take the opportunity to teach your children about how credit cards work. Explain to them how to verify the charges, how to calculate the tip, and how to guard against credit card fraud.
Many children don’t learn the value of money if all they see is you paying by card which may appear to be just like magic to them.
Pocket money to allowance
Pocket money often changes into an allowance once your child turns into a teenager. This can also change to a monthly rather than a weekly system to help them learn about budgeting. So talk with your teen about changing from pocket money to an allowance as it moves the sense of responsibly up a notch or two and they will enjoy the independence and freedom.
- Their money needs to be spread over the whole month. If they have a mobile phone, for instance, they need to make sure there is enough money to pay the cost of the calls at the end of the month.
- They can plan for large purchases and watch out for bargains and special offers.
- They can negotiate what their money is spent on.
- They are more responsible for what they buy as it is their own money.
Talk with the adults who give you the money about changing from pocket money to an allowance, or to start a regular allowance.
It’s also important to alert older children to the dangers of borrowing and paying interest. If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else’s money for a specified period of time.
Be cautious about making credit cards available to your teenager, even when they are entering college. Credit cards have a message: “spend!” Some students describe using their cards for cash advances and also to meet everyday needs, instead of just for emergencies (as originally planned). Many of those same students find themselves having to cut back on classes to fit in part-time jobs just to pay for their credit card purchases.
How much pocket money?
Lots of parents ask me how much pocket money they should give their kids but this depends on your circumstances and what you think is a reasonable amount. As long as your child understands how much they will get (and how often) and you are consistent, they can start learning how to use the money whatever the amount.
It’ also a good idea to be very clear about what their pocket money covers and explain it to them so there are no misunderstandings and rows! Base your decision on:
- What your family budget will allow
- What you expect pocket money to pay for – if you expect it to cover things like transport, lunches and savings, then you might need to give a little more
- How much pocket money your child’s friends receive as this gives you an indicator to roughly the going rate, but if it’s too much have confidence in your own judgement and stand firm.
- What should pocket money cover?
Pocket money could cover any of the following things:
- the bus fare to school
- a certain amount as savings
- spending as your child pleases
- donations to charity
If you find that your seven-year-old wants to save for something special and has been saving responsibly, you may decide to add something extra to help them along a bit. Letting your child spend as they please is an important way for them to understand the concepts behind money, and to develop a sense of responsibility and independence.
Here are top tips and pointers if you are thinking about giving your children pocket money:
- Explain to your child what pocket money is for and what it’s not for.
- Young children need clear guidelines as to what they are allowed to spend their money on. Agree with them and write or draw the items, displaying the rules on a board in their bedroom or in a book where they keep a record of their spending. I have some fun pocket money sheets available as a free download from my website www.positive-parens.com to help you get started.
- Decide whether or not pocket money will be withheld as a punishment for certain behaviours. This should be agreed right from the start.
- Pay what you can afford, regardless of what other parents (or your child!) might advise.
- Pay it on a set day.
- Set up a number of clear jars, to help your child divide their money up for different things. For example, one jar for small things they want now and another for saving towards bigger things and another for a charity. Seeing the level grow is a brilliant motivator and helps to highlight their achievement of being a good saver.
- Try not to give payment in advance.
- If pocket money is to cover entertainment, talk about what kinds of entertainment.
- Negotiate the price for different tasks, and make the amount earned relate to the difficulty of the task.
- Explain that as they get older they will be expected to do some of these tasks ‘for free’. But you will provide opportunities for them to earn money doing other tasks like washing the car or cleaning out the guinea pig’s cage.
- Support them as they reach the teenage years and encourage them in earning money by supporting and helping others such as elderly neighbours. Once they are 14 they can begin to earn money for themselves doing various jobs like a paper round.
- Try not to supplement pocket money – it’s all about teaching your child to live within their means.
- When giving your children pocket money, give them the money in denominations that encourage them to save. If the amount is £5, give them 5 one pound coins and encourage them to save at least one pound of it each week. (Saving £1 a week at 5 percent interest compounded quarterly will total about £76 after a year and £4115 after 5 years!)
- A positive parenting tip to encourage respect and independence is to ask your children when they’d like to receive their money as it gives them a feeling of being grown up and in control.
- It’s also a good idea to be clear about your ground rules and to put in some clear boundaries and limits on what they are allowed to spend their money on, for example, you may discourage them from buying lollies if that interferes with your views on healthy eating or violent DVDs or games if you feel that they are inappropriate.
- Discuss ways of saving money and perhaps open a savings account at your local building society that you can help them manage.
Pocket money and jobs.
Paying your children to help around the house is a complex issue. Linking their family contribution to pocket money may lead to unnecessary wrangling and interfere with the idea of contributing to family life just because they are family members.
Explain and be clear about the jobs they are expected to do in the family for free and the ones where they may well be paid. However, no single rule is right for every family. If your children work well under these circumstances, go with it. You might even consider giving them bonuses for extra chores if your child is saving up for something special. My daughter was saving up for her own mobile phone so we got lots of extra ironing done ….. so I didn’t complain!
If you do decide to pay pocket money for chores and jobs around the house, explain tasks clearly so there is no confusion about what needs to be done and when. If you would like some inspiration for teaching your kids about money, work, and finances consider these book suggestions for children:
- “Sam and the Lucky Money” by Karen Chin
- “If You Made a Million” by David M. Schwartz
- “ Alexander, Who Used to be Rich Last Sunday” by Judith Viorst
- “Chicken Sundays” by Patricia Polacco
- “The Money Tree” by Sarah Stewart
And for teenagers
- “The Richest Man in Babylon: Now Revised and Updated for the 21st Century” by George S. Clason
- “Wink: A Modern Day Parable” by Roger Hamilton
How you choose to teach your children about handling money, or saving and investing is a matter of your personal parental choice but whatever your style, values or beliefs it’s important to teach them that money really doesn’t grow on trees!
Sue Atkins is a Parenting Expert who offers practical guidance for bringing up happy, confident, well behaved children. She is also the author of “Raising Happy Children for Dummies” one in the black and yellow series published worldwide and the highly acclaimed Parenting Made Easy CDs. She regularly appears on BBC Breakfast and The Jeremy Vine Show on BBC Radio 2 and her parenting articles are published all over the world.
To receive her free ebooks bursting with practical tips and helpful advice from toddler to teen log onto http://www.thesueatkins.com and download them today.