When it comes to pocket money, it’s not the amount which is important but the way it is used which teaches kids money lessons they will keep forever.
We followed these rules for own children and now we implement them for our grandchildren … thankfully their parents are strong advocates as well.
So here are five pocket money rules you can put in place today to begin training your kids in money management.
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1. They must have a savings plan
For each of our kids, getting their pocket money was contingent on having a plan about what they were going to do with it.
Our rules were always the same … save 50 per cent and spend 40 per cent (don’t worry about our maths, we’ll get to what we did with the last 10 per cent soon).
The key is to agree with them on what to save for … saving for nothing is boring. We would sit down with our kids and dream together … a new doll, skateboard, footy etc.
Then we’d work out how long it would take to fulfil their dream and draw a little bar chart so they could see the tally rising each time they received their pocket money. We’d make a game of it. Make it fun and make a big deal of it when they reached their goal.
2. Teach them how to budget
One of the best ways to teach kids how to budget is to pay pocket money monthly rather than weekly … particularly teenagers.
That’s four and a bit weeks on average your kids will have to prioritise, improvise, scrimp and save to get by. A great introduction to the pressures they’ll face once they swap the family home for the real world.
Just remember not to cave in if they blow their budget early. A week without tuck shop won’t hurt them and they won’t forget it. But paying them extra can undo many of the lessons you’re trying to teach.
3. Show them the value of money
Yes, that means that they need to work to be eligible for their pocket money.
For us this didn’t mean “family” jobs like cleaning up their room or a mess they’ve made (which should be done for free for the privilege of being in a family), but jobs which saved us time like folding washing or unpacking the dishwasher.
If they don’t finish their jobs, they don’t get paid until they do. Just like in real life. It’s a great lesson reinforcing you don’t ever get something for nothing.
4. Encourage a part time job… as soon as they’re old enough
Jobs at home are great for younger kids, but there’s no substitute for the real thing.
So at 14 years and 9 months all four of our kids were shipped off to the local McDonalds. Whether you like the food or not doesn’t really matter, it is a wonderful training ground to learn customer service the process of work.
Not only was it a structured and positive introduction to working, it was great for them to meet other kids in the local area. And it was always interesting to see their reaction to their first pay slip, when they worked out how much of their hard earned cash went to tax!
5. Give them a sense of community
We said we’d get back to what we did with the final 10 per cent of our kids’ pocket money … for us it was used to give them a sense of community.
One tenth of their pocket money was saved up and donated to a charity of their choosing … and we matched it dollar for dollar.
We know they felt empowered by this simple gesture, and learnt important lessons about social responsibility.
As you can see, pocket money is the perfect way to start your kids’ financial education and life skills. Use it wisely, set ground rules and join them on their financial journey … you’ll see the rewards once they’re all grown up.