Use pocket money to give kids financial literacy
It’s good news that a $10 million “Sorted Schools” programme to teach kids about money will be introduced in some New Zealand schools. However, that’s no reason to relax. When it comes to improving our country’s poor financial literacy levels, the responsibility remains first on parents.
It’s never too early to teach kids the value of money, particularly when experts say people have formed their future money habits by the age of 7. So giving kids the tools while they’re growing up will help them to manage their finances in adulthood and potentially save them from unsustainable debt later in life.
In fact, pocket money for kids could be their gateway to greater financial freedom and more Kiwi families need to reinstigate the age-old practice
Overseeing a meaningful pocket money arrangement from the outset is key. The main thing to avoid is giving pocket money as a fixed entitlement with absolutely no strings attached. Kids need to know why they are getting it and have plenty of opportunity to maximise it.
For our children, we devised a system that paid them a bonus if they finished a particular job within deadline. An incentive to earn more than the usual flat fee will spark a lot of kids into action. Likewise, a roster on the fridge outlining household chores can be a central focus but it’s important not to turn it into boot camp.
You’ve got to make sure your kids enjoy the journey and feel an important and valued part of the household along the way. What’s more parents should encourage kids to be creative, innovative and entrepreneurial in the process.
The kids can sell fruit to the neighbours and friends and if you don’t have a fruit tree, the kids can plant one and reap the rewards. The learning process is important. Likewise, kids can make or find things to sell on the likes of Facebook or Trade Me.
For very young children it’s often about having a small purse or piggy bank with shiny coins in it. If they want a toy, then that’s your opportunity to begin making the connection between money and what it can buy. At the same time, you can teach them that coins are valuable and need to be kept in a safe place.
Whereas for older children, you can introduce concepts such as hourly rates where they can negotiate a bit with you. Parents should also take the time to show them how online banking works, and what interest rate their savings will earn.
As kids get older they love apps so find them a savings one that makes it interesting and fun such as Pocketsmith or Rooster Money. Help them set some goals so they can work out the amount they need to save every week to get there.
While having kids save some of their pocket money is an important part of the equation, so too is spending, as is giving to charity.
Weekly instalments of pocket money may work well for younger kids. However, as they get older, the next important lesson is how to budget. That’s when it’s a good idea to stretch out the pocket money payday to once a fortnight. For older teens, you might even want to go to a monthly allowance which will really test their budgeting skills.
When it comes to money, delayed gratification is something our grandparents knew a lot about, whereas instant gratification is what millennials are often more associated with. The reality is every generation lives in a somewhat different world and we can learn from the positives of each.
When it comes to money skills the greatest lesson we can give our kids is to reinforce that in life nothing is for free. Money comes from hard work and being careful — not just out of a wall!
If people don’t learn about the value of money and its basic management when they’re young, they’ll be a lot more susceptible to the likes of crippling credit debt and car loans.
And as they get older the numbers just keep getting bigger and bigger. This is of course not helped by all the easy credit that’s available, together with all the expectation, pressure and choice young people face today.
Again, well done to the Commission for Financial Capability on its “Sorted Schools” financial literacy programme. However, the role of parents in teaching children good money skills is arguably more important now than ever before.