Every parent wants their child to succeed financially, yet many parents don’t know how to begin.
8 Things to Consider When Your Child Asks for Pocket-Money
1. In the background. As early as possible, start a small regular payment into a bank account and let it grow. This fund will be invaluable later when higher-education costs loom, or will mean you can help with cars, houses or weddings. Note: only the parents have control of this money – some parents even keep it a secret from the kids!
2. Helping out. As a contributing member of your family, children should have responsibilities (suitable for their age) to ensure the smooth running of the household. These regular chores/tasks/expectations shouldn’t have a monetary value.
3. Create a plan. When you believe your child is ready to start learning about the power of money, plan the next steps. Questions to answer include:
- What do I want my children to understand/value about money?
- What is an appropriate amount for them to receive? What can I afford to give them?
- What is my expectation of how they spend/save their money?
- How might this transfer of money and responsibility change as they get older?
- How influenced am I by what other parents do? Do I feel the need to ‘keep up’?
4. Give their pocket-money regularly. Link it to a reoccurring event, such as your pay-day, the same day each month or each weekend. For young children, pay in coins, so it is easier for them to follow Step 5.
5. Use the Four-Part Money Magic system. Teach your children how to divide their income (whether it’s pocket-money or pay) into four parts:
- Spending (on anything they want)
- Saving for a goal (so it will still be spent, but on something that takes a bit of accumulation)
- Wealth creation (the sit-on-it-and-watch-it-grow fund for investing on income-generating vehicles and inevitable wealth)
- Donating (giving to a charity or social cause they like)
What percentage of their income will go towards each part? Help them establish their spending habits. Work out a way of keeping their money safe and transactions recorded. Glass jars? Lockable moneybox? Automatic payments into a bank account with online reporting? Keep them accountable to their decisions.
6. Offer bridging finance. Are you tired of being bugged for treats when you’re out shopping? Or the whining when you won’t buy them the “something shiny” that caught their eye?
Simply ask whether they’ve got enough in their spending/savings fund, and if they’re happy to pay you back when you get home! If you know what their savings goal is, a great question is “Do you want this more than <the goal>?” Teach them to focus on their greatest want.
7. Set your limits. It can be awkward when faced with choosing between ‘basic’ items and ‘brand name’ goods. Your kids will probably be skilled at using the “But everyone is wearing them!” line, or claiming they will be judged, bullied or excluded without the latest fad.
Decide on the limit of your spending on particular items (to cover the basics and maybe a bit more, depending on your budget). If your child wants a different brand, they have to spend/save for the difference. This again encourages the “Do I want it that bad enough?” question.
8. Leaving the nest. When you have a teenager, they may have a part-time job and wind up with more disposable income than you! What’s your expectation around their financial input into the household? Will they still receive pocket money? How can you help them learn about ‘living expenses’ before they go renting or to university? I know one parent who charged their teen ‘board’ but kept the payments aside, surprising them later by helping with the deposit on their first home!
Pocket-money and personal finances are topics that need thought and planning. With consistent effort, your kids will leave home with a secure financial foundation!
by Stuart Fleming creator of The Money Mindset Mob