When it comes to understanding money, it is never too early to start teaching kids about earning money, saving money and budgeting. There are many benefits of giving pocket money to your child as this can:
- Introduce them to the concept of managing their money
- Allow them to make choices about what they want to spend their money on
- Give them a degree of responsibility for budgeting their own money
2. Agree a plan of what they need to do to ‘earn’ their pocket money
As part of the pocket money agreement, you might list the items that the child must complete in order to ‘earn’ the pocket money. A good idea is to have a day and time by which the task(s) should be completed and the day and time that they receive their pocket money should follow. It is important to remain consistent with these rules and discuss with the child how they plan to spend/save their money.
3. Set budget for how much they will save and how much they will spend
A great way to help your child get started and learn how to budget is to have two jars or piggy banks with the following labels:
- Savings: For setting a goal, for instance if they want to buy a toy, book or sports jersey. Explain to your child why it is important to save and show them how they can do this by agreeing on a savings goal together. Get them to work out what the cost of the item they are saving for is and how long it would take to save for it, based on how much pocket money they get.
- Future: This is money that is put away and can’t be touched until an agreed time in the future. For example, it may be for a holiday fund. Teaching your child the importance of putting a little away for a special event or a rainy day is a good way for them to be prepared for what might happen in the future.
Every time your child receives money they can decide how much they would like to put into each jar. Over time your child will begin to understand how to manage money. They will then be ready for the next step, opening their own bank account.
4. Encourage your children to open a savings account
For older children, a savings account may offer not only a safe place to keep money but also an opportunity to begin understanding the basics of financial terms, including interest, deposits, withdrawals. You could encourage them to continue saving by agreeing to match the amount they have saved for a couple of weeks to help them reach their goals.
5. Have fun with it
Talking to older kids, and getting them interested in proper money management, need not be all about spreadsheets and financial reports. Some parents use the classic game Monopoly to introduce kids to principles of earning, saving and spending money. By sharing financial lessons with our kids starting at all ages, we can help them understand the importance of being financially responsible and self-sufficient for life.