Today is ‘Teach your children to save day’ and while most parents know the importance of teaching kids the value of a dollar, it can be hard to know where to begin.
Pocket money is usually the first way children learn fundamental money management skills like saving, budgeting and spending, so having a system in place is important.
In the spirit of the day, ING DIRECT’s money expert, John Arnott, has shared his top four tips for setting up a pocket money system that’ll help your kids get ahead.
School your kids on money management
The first step in giving your kids an allowance is to decide how much you will give them. While you can begin paying your children pocket money at any age, the time kids start school is often considered a good time as it ties nicely with a new life stage and set of responsibilities.
In terms of how much to give your kids, this is a personal decision which often depends on your financial situation and how much you can afford.
One approach to a weekly allowance could be for kids to receive $1 for each year of their age. For example, a 5-year-old would be given $5 a week, while an 18-year-old would receive $18. Another option could be to stagger payment amounts based on schooling, for example, $7 for primary school students and $20 for high school students. Both approaches work well, but generally the dollar value increases as the child gets older and inherits more responsibility.
Money doesn’t grow on trees
In order to receive pocket money, it’s essential kids learn to work for it by completing assigned tasks, like household chores. This is how earning an income works in the real world, so you should use pocket money as a means to give them an understanding of this.
When establishing the types of chores, consider opting for tasks that are ‘little and often’. Some easy first jobs include emptying the dishwasher each night or feeding the family pet. It can be a nice idea to keep track of their daily activity by creating a star chart. Not only will this add an element of fun to their chores, but will also further instil the sense of reward for their hard work.
Count the cents and the dollars will take care of themselves Every cent counts
A vital skill all adults, as well as children, should master is to budget. Like most things, if this is taught at a young age the habit can extend to adulthood.
To teach children how to budget, a good starting point is to sit down with them and have a conversation around its importance. Work together to agree on an amount they will save each week. For example, from each weekly allowance, your child may decide to save at least 20 per cent e.g. if they receive $10 a week, they will save $2.
To promote the idea of regular saving, work with your child to set a financial goal – maybe it’s a day at a theme park, or perhaps a new video game. For children, this can help to show how long term saving ultimately pays off, except maybe for them it’s by purchasing a cubby house instead of a “grown up” one.
Like all things in life, it’s important to monitor progress. Make an effort to check in with your kids and have active conversations about their finances. An ideal time to do this is when you give your kids their allowance as it’s a chance to discuss what they plan to do with their cash that week.
By doing this, it encourages your children to have open discussions about money with you, and creates an opportunity for them to talk about any troubles or concerns they may have with budgeting.
Pocket money is a great way to teach kids about the value of cash. However, it’s important to remember, kids are only young once so don’t be too tough. It’s okay to buy them that ice cream every once in a while – even if they can’t afford it.