Learning how to budget as an adult is more difficult, so start your child out right by teaching him how to budget while he is young, and you will build good money budgeting habits right from the start.
These lessons are not necessarily easy for either the parents or the child, but when your child reaches adulthood and finds that he is able to manage his money better than his friends, he’ll have you to thank. He might not recognise that his proficiency with money is due to the lessons you gave him early in life, but you will have the satisfaction of knowing.
Include Your Child in Discussions about Your Finances
Lots of parents think that they should never discuss their financial situation with their child. The opposite is actually true. Bringing your kid into the family’s financial discussions will help to give him the context he needs to understand why certain purchases are not made or why holidays are not as elaborate as their friends’ trips.
You will need to determine what level of inclusion is appropriate for your child, but getting him involved even a little when he is young and then increasing his involvement step by step as he matures will give him the working knowledge he’ll need later in life when dealing with his own finances.
A Weekly Allowance Is a Good Teaching Tool
Some parents give a weekly allowance and some don’t. Sometimes the allowance is tied to household chores. Sometimes it’s not tied to chores but is considered a way of teaching kids to budget.
Keep in mind the value of giving an allowance as a method of budgeting for kids.
Simple Is Best for Small Children
Keep budgeting very simple when your child is quite young. The idea is to begin teaching the concepts of saving money for the future and prioritising how to spend it.
Many parents like to use clear glass jars for young children to put money into.
Get More Complex as Kids Get Older
As your child grows, you will find that including him more and more in financial decisions will deepen his learning about budgeting. Watch your child’s attitude toward money to determine how fast to bring him along.
You’ll find that teaching simple budgeting at an early age and then progressing step by step so that he can participate in decisions on bigger purchases will prepare him well for dealing with his own money as an adult.
From our recent poll on the Money Moppets website and Facebook page, we found that the average pocket money amount paid weekly is $8.34. And 64% of our readers are paying their children pocket money for doing jobs.
Financial literacy in adults begins with the habits that children develop as their parents educate them about money management. One of the tools for this education can be pocket money.
If used correctly, pocket money can be a tool that helps a child learn how to handle her own money.
They can learn to plan their spending in such a way that they rarely come up short. They may make some mistakes along the way, but will learn how to make the kind of choices that fit into what they want. If the pocket money is at first a small amount to be used only for a few extra things the child wants, but then develops into a larger amount that covers their weekly expenses, they can learn not only money management, but also how to be responsible for their own well-being and independence. If a child’s pocket money is connected to household jobs, then they can learn the connection between work and pay.
Not everyone agrees that children should receive regular pocket money.
Some people believe that children who receive unconditional pocket money not tied to jobs end up viewing money as an entitlement.
Children that receive pocket money in exchange for doing household jobs may make such a strong emotional connection between money and jobs that they end up expecting to be paid for every small thing they do. As a result, they do not develop the feeling they are part of a team/family.
How Much Pocket Money is the Right Amount?
According to the Commonwealth Bank of Australia, it seems that most parents give pocket money in the following amounts.
When it comes to giving pocket money, parents have some very difficult decisions to make so that the system of receiving pocket money results in positive outcomes, like developing independence and responsibility, learning how to manage money and delayed gratification, and understanding the value of money.
What System of Giving Pocket Money Is Best?
There is no set right or wrong about one system of dealing with pocket money over another. How parents handle the issue of pocket money and educate their child about money management will determine whether the system they’ve chosen is right.
Pocket money for kids can be tied to household jobs. According to the Commonwealth Bank of Australia, most pocket money is connected to jobs that the child does around the house. This system can help a child appreciate the value of money, but the parent must take care not to foster the notion that the child should be paid for every small help they give. If this system is not handled well, the parent can end up losing control of the child.
Pocket money can be tied to grades at school. This is another system that could backfire. Some children might be motivated to study hard in order to get a financial reward, but others might end up being overly stressed.
Pocket money can be connected to behaviour. There probably isn’t a parent in the country who has not been guilty of bribing a child for good behaviour. If done sporadically, it probably will not result in lasting harm, but if done on a regular basis, children might develop an attitude that they only have to be good when being paid.
Proceed with Caution
What works for your friends and their children might not work in your family. And what works with one of your children might not work with another. Evaluate each child and your current family situation, and proceed with caution.