Teaching kids about allowance & saving
Giving your children an allowance is sometimes a difficult topic. A lot of the time people say that as part of the family, children should chip in and help without payment. Or how much do we pay them and what do they need to do in return to earn it?
Managing money is hard work. Not having the right education about finances can lead to financial difficulties in the future. There are three major topics when it comes to teaching your kids about money:
Being financially responsible through spending money
How to save money
How to set realistic expectations and goals for yourself
“They need to enjoy being kids”. This is very true and important, however, by not teaching them to manage their money and be financially responsible, you are setting them up for unrealistic expectations.
Research has shown that young people who develop good financial habits earlier on in life, tend to become more financially stable and independent throughout their teenage years and adulthood. This is a stark contrast to adults who haven’t had a good financial education so they struggle to save money, budget their bills and are more likely to get into debt.
Learning to manage money is a life skill and one that we should want to teach our children to enable them to have a more secure future and the knowledge to deal with any financial issues they may face.
Your children may be at an age where they are already earning their own money, or you are giving them regular pocket money which means there is never a better time to start teaching them how to manage it.
Talking about money can seem a bit boring for children, so it is important to find an interactive way to create a budget. We all only have a certain amount of money, and that pot size varies for each individual, however, there are always things we need or want to buy. Having a budget will teach your child to weigh up saving money vs spending money.
How do I teach them money management?
Numbers on a sheet can get quite overwhelming, so we’ve got a great interactive way for you to perform this.
You will need to take their age into consideration with these tasks as what is suitable for a 7-year-old, won’t be the same for a 14-16-year-old. Using marbles, beads or something similar to represent money is a good place to start. Use one bowl for bills, one for savings and one for spending. For younger children, their bills could be food shopping and savings could be for a bike or gaming system, for older children bills could be rent and savings could be for a phone.
This is a great opportunity to teach the 50-30-20 rule. 50% of the money on bills, 30% on spending and 20% on savings. As they get older, going into more detail about rent, electricity and water will help them budget more effectively. Including tasks for them each month, such as their bike needing a new wheel or the washing machine needing to be replaced, will help teach them how they can adjust their budget to accommodate those unexpected expenses.
A big part of the budgeting lesson is teaching your child to wait before making a purchase. This is called delayed gratification, and, during a time when Buy Now Pay Later is actively available at our fingertips, it's something we as a population struggle with. Showing your children that it’s important to wait, if possible, as there are often deals and sales through different retailers which means they can spend less money in the long run. Or they may find that they don’t actually want something they may previously have been pining over a few weeks ago.
Credit
Education surrounding credit cards, Buy Now Pay Later schemes and loans is definitely a topic that needs to be addressed with our children as sadly, it often isn’t spoken about in schools and can lead to debt and money anxiety from a young age.
Saving
A child is never too young to learn about saving. Saving to a child vs saving to an adult is very different. Money Advice Service published a study that found that by age 7, a child is perfectly capable of complex functions such as planning and making decisions until a later date. This means that starting with pocket money from this age is a good start, but it is important to be matched with healthy money talk.
If you are planning to start giving pocket money, you’ll need to address where they should keep it. We’d advise having a child-friendly bank account and a savings account, or if you aren’t ready to set them up with their own accounts, start with 3 jars. One for bills, one for spending and one for saving.
Having their own bank account can help them understand their spending and learn healthy money habits. Going through their weekly and/or monthly statements with them will keep the conversation of money at the forefront of their mind.
A savings account helps your child plan for the future. Whether this is a new toy they’d like, an item of clothing or they have set themselves a goal to save for an even bigger item, it’ll help teach them about longer-term goals which will, in turn, help them save for university, buying a house or other bigger events in life. Seeing their balance grow will be great motivation to keep saving.
Teaching the value of money can be done in many different challenges before deciding to give your child pocket money. Take them to the supermarket, give them a list and a budget, and let them add all the items together and get them to fit into a budget.
Give them a budget to purchase their new school stationary or ask them to draw up a budget for the household bills. For anything to do with your household finances, try and find a way to involve your child.
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