Kids need to get money smart ASAP
Money is taboo in some families, but when it comes to life ‘‘money underpins it all,’’ financial expert Hannah McQueen says.
Pocket money is where children first meet finances, and the weekly payment should be used to create an appetite for earning dosh, showing children how it gives them choices, says the Aucklandbased adviser.
McQueen’s new book, Pocket Money to Property, takes a blunt and challenging look at childraising, correcting what she regards is the widespread mistake of raising children without money smarts.
The book paints a bleak future in which being smart and focused about money becomes a vital survival tool. Starting with parents paying their kids.
How much isn’t important, but she suggests matching dollar per year, so $10 for a 10-year-old.
Ages 5-9: Kids should be earning their pocket money
Pocket money payments should begin at about 6, but kids have to earn it. Children should do some chores for nothing as part of the family like making the bed and tidying their room. Beyond that, there should be an advertised list of jobs they can choose from to do to earn pocket money. If they don’t do the extra jobs, they don’t get paid and they don’t get the extra treats, which the pocket money buys.
Encourage children to split their money into three parcels: money to spend, money to save, and money to share or gift, this shows them how saving now can be useful in the future. But the pocket money is the child’s to do what they want with.
Ages 10-13: Earning pocket money is compulsory
Earning pocket money is now compulsory. If children don’t choose to earn their coins, privileges like screen time are lost. This teaches them that not earning is not an option in the real world.
Children should also also be given an allowance. This is money the family would have spent on them for things like clothes and entertainment. Now the child gets to choose how and when to spend it on those things, teaching them skills of budgeting and spending.
Children learn there are compromises around spending.
Ages 14-16: Begin to write a spending plan, reveal the family finances
By 16 a job ofabout 10 hours a week is a must. It teaches children real world work skills, like working with difficult people, or how a real boss is different fro parents. It also helps gain insights on what they want to do as a job.
Pocket money continues, with jobs done to earn it. It continues until they leave home, but may start fading away as part-time work takes over.
From 14, children should write down a spending plan. They should project likely income from all sources in the next three months, then list what it needs to be spent on.
One of her most confronting ideas is at about 16 the family should do a big reveal of its finances. ‘‘Tell them what you earn, what you spend. Are you saving? Are you on track to be mortgage-free if you have a home? Are you on track for retirement?’’
‘‘What they can’t work out is whether the money earned is enough for the family to succeed. They need to understand that when they need to work out what career path they take.’’
Ages 16-18: Time to talk about investment
Creating wealth is less to do with what is earned and more to do with how the money left over is used. Children are introduced to the idea that income alone is not enough.
Pocket Money to Property: How to Create Financially Independent Kids. Allen and Unwin, $30.