Pocket money is under-rated as a way to teach kids core money lessons. The idea of them having their own cash is beneficial…
- It teaches them about regular income.
By having a regular amount of money you start to learn the concept of saving versus spending.
- It incorporates ‘opportunity cost’.
While each of my two money mantras normally have three questions to ask yourself before you spend (see the stop spending guide for more, actually there’s a core question in each. If you’re skint it’s ‘ask yourself do I need it?’, if you’re not skint it’s ‘is it worth it?’
The latter is all about opportunity cost, whether you could get better benefit or enjoyment spending the same cash on something else. For a young child it’s perhaps “do you want to buy sweeties with your money every week or save up to get the toy that you want”?
If they get the sweets, when they ask for the toy it’s worth reminding they had the sweeties instead, and next time they may want to change the decision. In life we’re always faced with such choices, so learning to manage them early is great.
- It’s a beginners’ guide to saving.
It even allows them to start to understand more complex questions such as ‘to save at home or put money in the bank and gain interest’ which of course should always be maximised (see top children’s savings guide)
Working for your cash makes you realise what it’s worth
As I’ve got more involved with the coming launch of financial education in schools, I’ve found myself being interviewed and thinking more about how to construct money lessons in all circumstances, and I think there’s still possibly a key lesson some parents miss.
As adults we all know money doesn’t grow on trees, you need to work for it and generally the more work you do the more money you have…
- Don’t just dole out cash to kids.
When children are regularly rewarded for doing nothing, in effect it’s ‘trust fund teaching’ the idea that you’re simply given money because of who you are. Doling it out on a plate is unrealistic and isn’t a good idea (even for those who do have trust funds, it can be a disincentive for improvement), so rewarding for work done is important.
- Be careful about what counts as work.
Reward a child for cleaning their room or behaving well. The message is this is something you’re not normally obliged to do, rather an added benefit, and that’s not particularly what you want.
Far better is to reward doing things for others such as cleaning the car or for the family like washing up everyone’s dishes or even helping others like taking the bins out for an elderly neighbour who can’t do it for themselves.
Of course there’s a balance when effort above and beyond the call is made (such as great exam results) but in general, in the adult world, if work were so good we wouldn’t get paid the same concept can be applied for pocket money.
- Be consistent.
To make this work you need to be consistent and give legitimate expectation to your child – make it as fair as possible.
Of course it’s easy to say this on paper, and I know sometimes rewarding children financially is an easy way to get them to behave or quieten down, yet if possible it’s worth considering the message too.
I’d love to know what you think and your top pocket money tips.