Teaching your kids about the value and importance of money from a young age may encourage a healthy relationship with their finances when they are adults — and this can start with pocket money.
“As soon as children start wanting or asking for things such as special toys, parents can teach them the idea that they need to have money to pay for it, and that this money doesn’t grow on trees,” said head of consumer education at FNB Eunice Sibiya.
She is of the opinion that as soon as children understand basic maths principles, normally in the early grades, you can start teaching them about money. This is because one needs basic maths principles to understand the concept of saving and spending.
Some parents and financial advisers agree that you should start as soon as they are able to count — around the age of five or six.
How much you choose to give them could be based on your family’s unique financial situation and monthly living expenses. What is most important is letting your child take charge of how much of their pocket money they spend and how much they save, enabling them to learn from their own successes and mistakes.
“We should be careful of giving them pocket money just because we can, as this risks their understanding of the value of money. They may grow up thinking it’s a given,” Sibiya cautioned.
So how can parents use pocket money effectively to teach their kids about financial literacy?
Head of savings and investments at Absa, Thami Cele, has these seven tips:
1. Decide how much to give as pocket money.
Choose an amount that is appropriate for your children’s age and consider starting with a small amount.
2. Decide how often you’ll pay the pocket money.
Try to give your children their pocket money on the same day every week or month. This allows them to plan, budget and save for future expenses. They also learn consistency from you.
3. Decide what to do if your children ask to borrow more money.
If your children ask to borrow money before they next receive pocket money, use this as a chance to talk to them about credit, loans and interest. If you decide to lend them money, consider charging a small amount of interest. This will help them understand credit. It will also teach them that it usually costs money to borrow money.
4. Decide if your children should work for their money.
Some families choose to treat pocket money as pay for work, and their children must finish certain chores before they get paid. Other families don’t link the pocket money to work, but instead use it as a tool to help teach their kids good financial habits.
You need to decide which option is best for your family.
5. Be clear about the rules.
If your children receive pocket money for doing chores, make sure they know which chores they need to do to earn their money, and which chores they need to do simply because they are a member of the family.
6. Pay teens less frequently.
When your children are teenagers, it may be a good idea to pay them their pocket money every two weeks or monthly. This forces them to manage their money over a longer time period and will help them plan and make choices about how they spend their money.
“Children need to have good saving habits to be good spenders. It’s about financial goals. What do they want, how much is it and how long will it take for them to save for that?” said Sibiya.
7. Decide when to stop giving them pocket money.
Make it clear to your children when their pocket money will stop. When you stop giving them pocket money, make sure they understand what you’ll continue paying for and what they need to cover by getting a part-time job, for example, if that’s necessary.
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