A guest post from Eugenie Alder, a mother.
I never really thought about when I would start a pocket money system with my children. My daughters are 8 and 6 and their numeracy skills are barely adequate to convert cents into dollars. Then they started wanting and demanding more and more things and I realised that it’s not because I can pay for all these things (and spoiling them makes me feel good) that I should. What I am teaching them if wanting only ever results in getting? The trap is all the more dangerous that younger children have no want for luxuries and expensive things, and with no shortage of cheap clothing, toys and junk food it’s never been easier to spoil my children rotten on a budget.
I needed to implement a system to teach my kids about money and I needed to teach them beyond the cycle of wanting, saving and then spending it all. I needed to teach them about managing finances and incentivizing them to become financially savvy and possibly financially independent.
Pocket money is earnt, it’s not an allowance
It’s important to me that my children learn money has to be earnt. It’s equally important they learn they won’t make money just for being good. There are tasks that always have to be done (keep the bedroom tidy, do your homework) and these don’t earn pocket money in my house. Tasks that earn pocket money should involve providing some kind of service and trading time for money. There are also opportunities to earn extra money by doing extra tasks (generally involving helping me out and saving me time).
Saving goals can be useful but they don’t teach everything about money
Setting saving goals (e.g. saving for a mobile phone) sound like a good idea but when it comes to pocket money, some people tend to teach more about wanting and spending than saving. I want my children to learn to manage a budget and keep their expenses lower than their income. And in order to achieve that they need the opportunity to manage real money rather than saving for a special treat.
Beyond pocket money
Rather than use pocket money as a treat system through which my children’s buying decisions are limited to sweets, apps and toys, pocket money is used to provide for all non-essentials. This way my children can learn about managing costs and making meaningful spending decisions. Of course, these expenses can’t be covered on a $4 a week budget so this involves investing some effort in calculating a reasonable weekly amount to earn based on what they are likely to need and want outside the essentials provided for them. I found limiting their contribution towards these expenses to 50% was a good way to keep the weekly amount low enough and not limit their choices to cheap options.
There are many ways to earn money
As my children get older, I will be implementing earning boosters to incentivise them to get a job or demonstrate entrepreneurial skills. A regular job would be rewarded with a small booster whilst a more entrepreneurial endeavor would be rewarded higher. My other goal is to teach my children that there are many ways to make money and that trading time for money is not the only way to earn. I hope that by educating my children about personal finance, they will be best prepared for the world they will inherit.