Once children reach the age when they beg for every toy imaginable, it is time to help them learn a bit about money management. There are two schools of thinking when it comes to pocket money for kids — chore based earnings or simple allowances.
Chore Based Earnings
Some parents believe that children should be required to earn their pocket money by doing chores so that they will begin to appreciate the value of money.
When work performed equates to money, children learn quickly to prioritize their desires.
It is much easier to request a new toy when mum and dad are picking up the tab; when a child must earn part (or all) of the money and save for wanted items, they begin to view money in a whole new way.
Chore charts are probably the easiest way to organize and track chore based earnings. Parents can use a simple calendar to keep track of completed chores and their values. Payments are usually made each week upon the completion of agreed tasks.
While some parents prefer to see their children earn their spending money, others are uncomfortable with the idea of paying their kids to perform assigned chores, preferring that the children learn to help out simply because they are part of the household.
These parents feel that they should not have to pay their children to do things that they should be doing already.
There is nothing wrong with this line of thinking and these same parents can still teach their children good money management skills by giving them an allowance.
Allowances are usually paid weekly, with the amounts varying based on the age of the child.
Regardless of their feelings on whether or not their children should have regular tasks assigned to them to earn spending money, many parents do occasionally offer to pay their children for some things.
Many parents offer monetary rewards for maintaining good grades in school, helping with large projects such as cleaning the basement and organizing the garage, or babysitting younger siblings.
No matter where children get their money, it is important that they be taught to use sound judgment in matters of money.
Spend, Save, and Donate
In order to raise kids that will someday be fiscally responsible adults, it is important to guide them when they first have money of their own.
Explain the difference between “wants” and “needs.” Also, be sure that your children understand that living within a budget can sometimes mean deciding to get one item or another and that when funds are limited, you can’t always have everything right away — sometimes you have to save up for things that you’d like to buy.
One of the simplest ways to show children how to save is by using four jars. Label each one with one of the following:
- Save / short term
- Save / long term
Once the jars have been set up, explain to your children that they’ll need to decide how much of their weekly money will go into each jar.
They must allocate some to each and it is best to decide on percentages before they ever get their first “pay check.”
Be sure to explain what the money in each jar will be for and help your child to decide on reasonable percentages.
Money in the “spend” jar is for them to spend freely on anything they wish.
The “save / short term” jar holds funds for clothing, toys, movie tickets, or anything else that they enjoy but do not have enough for using only one week’s allowance.
“Save / long term” refers to big ticket items that the child will have to save for over a longer period of time.
Examples of long term savings goals for kids may be a bicycle, designer clothes, large toys, a car, or a college education.
Lastly, teach children to set aside some money to “donate.” It is important to be socially responsible, so begin early by encouraging your children to allocate a portion of their income to help others.
Discuss ways that they can use this money and then help them to follow through when the time comes.