Knowing how to manage your money is a vital life skill that everyone needs. And as a parent or guardian, you have a huge role to play in preparing your children for the big world that awaits them. Teaching them about money from a young age can help solidify the finance fundamentals early on in their lives. But how can you do it? Pocket money is a great way to help your children understand personal finances.
Here are 3 ways that pocket money can help your child master money:
1. It’s a safe space to learn about finance
By giving your child pocket money, you give them a risk-free opportunity to learn about money. You also create a space where they can put theory into practice in an easy and tangible way. By simply saying ‘you shouldn’t waste money’, most children won’t truly learn that lesson. But by giving them their own pocket money, they will grasp the notion a lot better when they are in charge of how they spend it.
You can start small and give them a basic weekly allowance. Then at the beginning of the week when you give them their pocket money, take some time to talk about budgeting. If they want to spend all their money on ice cream in one day, they can do it. When they don’t have money left to buy a movie ticket, or can’t go out for a meal with their friends, they will realize that there are consequences to their expenses.
This is a great way to teach children financial responsibility, how to delay gratification and practice long-term thinking. By giving children the chance to learn these lessons and make these mistakes at a young age, they are less likely to make those costly mistakes at an older age when the stakes are much higher.
2. They’ll learn to value money more when they’ve earned it
A key part of not being wasteful about money is valuing it. And if children receive an allowance, without contributing to the household, it can be easy for them not to care about its value. That’s where a working allowance adds immense value to your child’s view on finances.
A working allowance simulates the real world, where you work, complete tasks, and then get paid for them. However, you, as the parent, must manage this carefully. You don’t want your children to always expect money in return for doing basic things or good deeds, such as making their bed or offering to help around the house.
And of course, this isn’t an excuse to have your child do hard labor. Tasks and chores should be age-appropriate and be managed healthily and sustainably. But it can be anything; from feeding the pets, and cleaning their room, to picking up litter in their local park or helping to wash the dishes.
By encouraging your children to complete chores in exchange for their allowance, they can easily make the connection between hard work and earning money.
3. It will get them excited about investing
Children generally enjoy small projects. And investing a part of their allowance can be such a project. By teaching them the principles of saving and investing, you can help your child to become a natural saver! And in times when young adults don’t know how to save this is a vital skill to teach children.
You can also make it fun and visual. Depending on their age, you can let them have a jar that they can fill up and see the progress they’re making. Or if they’re older, you can help them set up an interactive spreadsheet where they can see the growth of their investment. You can also reward your children with non-monetary treats when they hit certain milestones. For example, if they’ve achieved 50% of their savings goal, they can choose the movie that you as a family will watch, or they can have their favorite meal, etc.
By doing this, you can teach your children that saving money can help them reach bigger financial goals, be focused on long-term achievements, and be more prepared for life’s surprises.
The sooner they learn, the better off they’ll be
By giving your children pocket money, you have the perfect opportunity to teach them the valuable life skill of managing money. It can help them value and manage their finances more effectively, which in turn can help them remain debt-free or enable them to achieve financial freedom early in life.
Whichever approach you end up taking, it’s clear that giving your children an allowance from a young age holds major benefits for them in the long run.