February 10, 2023•
5 min read
Everyone, from young children to older people, care about money. There is a belief that kids do not need it at all. However, financial experts are sure that they should learn how to manage money already at school, along with the basics of physics and mathematics. Moreover, child psychologists say that it is important for children not only to make money, but also to save up for something they are eager to buy.
In the digital era, physical pocket money is getting rare. It is being replaced by bank cards and digital currencies. However, when it comes to giving pocket money to kids, the easiest way is to use traditional paper bills.
The most effective way to teach your kids about finance is role-playing games. For example, you can role-play a situation in a store, hairdresser’s or restaurant where the child will play the role of an employee. When the kid begins to get money for their work, although not real, they will gain actual experience in financial management. Once you have passed this stage, you can move on to board games like Monopoly. It is only important to choose the right complexity level for the age: from simplest coins to large investments and digital money.
After play money, you can safely switch to real paper bills. For instance, you can give the child a small amount of money when doing the family shopping. Let them make their own shopping list, fill the cart with goods keeping in mind how much money they have, and pay for chosen items at a checkout. This will help the kid understand that some products may be beyond their budget, so they should choose something more affordable. You can start simple: tell them how much chocolate they can buy for a certain amount of money, and then go further into the matter.
Child psychologists all over the world agree that the sooner parents begin to get their kids familiar with money, the higher the likelihood that they will be financially literate when they grow up and will not get into debt. Getting pocket money is a good habit that will help your child learn how to manage their finances, especially if they are over 5 years old. However, you should think about safety in advance and follow some rules.
The ability to properly manage their finances is important for children to understand the value of money. This will help reduce impulse buying. In addition, it is worth reminding the child that money is needed not only for daily spending, but also for saving up for greater goals such as donations or charity.
Most often parents give their child a personal wallet at the age of 7 years. At this age, the kid is already quite aware of the value of money, understands the prices of different products, and has a need for personal expenses. The first necessary expenses usually appear at school. Parents can decide on how much pocket money to give on their own by roughly calculating the child’s daily expenses. The key is to keep the amount small and affordable for the family budget. Thus, if a young money maker accidentally loses their wallet when playing with friends, this loss will not be that frustrating. Initially, it is not so important to help the child figure out the amounts and prices. What really matters is to teach them to save, not to spend.
Sometimes parents face a certain dilemma. On the one hand, children need their own money, but on the other hand, they can be frivolous with their finances. This problem is particularly relevant for low-to-middle-income families. However, experts identify multiple ways to teach kids about financial literacy and not be afraid of waste.
First of all, you can talk about the basic principles of money management, for instance, to explain that money is not created out of thin air, but is earned from hard work, as well as that their stock is not unlimited and should be managed wisely.
The second thing you can do is to set a limit. If the money is needed only for certain purposes such as lunches at school, you can roughly calculate the monthly amount and give it to your child. Another option is to set time limits, so as to give money only weekly or monthly. This will teach your child how to budget and avoid overspending.
It is also important to create a reward system. For example, you can draw up a pocket money chores list or think of financial incentives for good academic performance. Some parents give extra money to children when they save up for a big purchase.
None of the parents wants their children’s material wealth to be compromised. However, sometimes you cannot avoid setting limits. But how can you limit the amount of pocket money given to your child without making them feel uncomfortable?
The major step towards the child’s financial literacy is limiting the amount of pocket money. The limit should be realistic and correspond to the family income. It may also depend on the age of the children, their income and savings goals. For example, 10-to-13-year-old children most often need money to pay for public transport or buy small toys. On the contrary, teenagers aged 14 to 15 or older want to spend more, particularly on cinema tickets, cafes and other types of entertainment. The average pocket money amount for a five-year-old child is four pounds a week, while a 15-year-old teen tends to spend around 12 pounds over the same period.
You can also impose restrictions on certain categories of purchases. For instance, if parents believe that their child should not buy burgers, they’d better not give them money for that purpose. Alternatively, you can give your child freedom to buy anything they want, yet for a limited amount of money. This will help them learn how to budget and understand the value of money.
Pocket money apps are becoming increasingly popular among teenagers aged 12 to 14 years. They can be very interesting for kids as developers strive to offer their young audience gamification, including various rewards for achievements in money management. Parents should definitely take note of this quick, easy and fun way to teach kids about money.
These apps have another important feature: they help you teach children about the principles of investing and long-term financial planning. For example, you can demonstrate to your child how to properly manage the child allowance, no matter how much it is. Furthermore, many services offer the opportunity for parents and children to communicate and discuss financial issues on the same platform. Do you want to make a purchase? Tell your family members about it and get access to the payment functionality.