Teaching our Kids good financial habits: Pocket Money
Many years ago now, my then 3year old son was asking me to buy him a treat. I explained to him that I had no money and he promptly asked to see my purse. So I opened my purse (strategically so he couldn't actually see my money!!) and showed him. The words that next came out of his mouth... "just use the card Mummy".
It get's me thinking, how do we teach our kids responsible habits with money? Particularly in the era of an almost cashless society that our kids are growing up in.
One of the simplest tools, when done well, is giving them pocket money. However, current research shows that most Aussie kids are receiving pocket money without having to work for it.
It is important for our kids to understand the value of a dollar, so it is reasonable that they understand and experience 'earning a dollar'. Having set chores that they have to do to earn their pocket money is a great way to start. The emphasis is on understanding that if they don't complete their chores then they don't get paid their pocket money. The bonus for you, hopefully, is a more willing helper around the house!
So how much pocket money should you dish out?
Many families choose to pay by the rule $1 per age, so a 6 year old would get $6 etc. However it is all down to personal choice with regards to how much.
When you are setting the weekly allowance, you might also consider whether or not you will expect them to pay for some day to day expenses, like catching the school bus, buying non essential clothing items or paying for leisure activities.
Placing some responsibility on your child to pay for some day to day expenses is a great way to teach them the next step - budgeting! Take the time to sit down with them and work out a simple budget. Discuss how much things like their mobile phone, school canteen and other incidentals cost and make sure you allocate a portion to 'savings'.
Research suggests that it is easier to teach good money habits if you start with physical cash in their hand so that money becomes tangible. Physically portion it out. For example you might use 3 jars, one for Saving, one for their Expenses and another for Extras/Fun. This way they see their savings grow, they see how much is needed for things like their bus/phone money and must learn to curtail their other spending to a budget of what remains in the 3rd jar. Using actual cash to hand over in exchange for purchases helps our kids learn that money is not unlimited and that there is a difference between savings and credit.
When you think they are ready, you can move to a bank account and debit card access.
Finally, when you think they are old enough and ready, have the conversation about how credit actually work. It is so important that our kids understand the implications of accruing interest in our ever growing cashless society. And the addition of facilities like Afterpay, are only increasing the temptation for our kids to get hooked on credit.
We hope you find this information useful.
Gadsden Finance Team