Do your children get pocket money? Here are some simple tips to start the allowance habit that will help them understand money.
How many of us had the concept of pocket money for kids, while growing up? If you’re from the late 70’s and early 80’s era, chances are you didn’t have it at all. But there are definite advantages to having pocket money, apart from just the monetary benefit.
Times have changed. For one thing, we live in an era when things are easy to come by, relatively speaking. Most of our kids grow up in households where there are a minimum number of devices, instant access to the latest technology and easy-to-use services which deliver items to your doorstep. Kids rarely know what it means to want something.
For another, it’s important to inculcate the value of money in our kids, where they can understand that just because something is easy to come by, it isn’t cheap. So how do we go about it?
Explain want vs need
First, teach them the difference between an item that they want and an item that they need. Wants are usually impulsive, based on things that they see either in an ad or when they see other kids having them. It’s the classic case of ‘But everyone has it, mom!’ Fidget spinners, anyone?
If a child comes home and asks for the latest Xbox or Wii, what do you do? Saying ‘No’ is not enough. Ask them why they want it? If they say ‘I’ll play with it’, lead them to their room of toys and ask them how often they play with each of the toys they have. Does it make sense to invest in a product which will lie forgotten in a corner of the cupboard five days from now?
Alternatively, tell them they can have the toy if they are willing to give away another toy. This will simultaneously teach them a few things:
- The one-in, one-out rule
- Minimalism and using what we have first
- The desire to have a toy vs the need to have a toy
Encourage the concept of a piggy bank
Most of our kids don’t understand the concept of price or cost, because they don’t understand earning or saving yet. This isn’t their fault. But we can help them learn from a very young age.
Invest in a piggy bank. There are enough varieties on the market. Creative parents can actually make their own at home if they are so inclined. Here are some simple reasons a piggy bank will help.
- Putting something away for a rainy day
- Save money before you can spend it
- Understand the concept of how much something costs
Periodically, ask the kids to use their own money to buy something. As they keep doing it, they will realise the value of saving as well as spending.
Use the 4-pronged principle
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Some time last year, I saw this post on Facebook about a couple who came up with a very simple yet effective idea on how to help kids manage their pocket money. They had given their kids a piggy bank each, but that wasn’t all. Each piggy bank was unique and contained four different slots: Save, Invest, Donate & Spend.
Each month, the kids were given a fixed amount and were asked to distribute it in each slot as per their need. So, if a child had Rs.100/-, he/she could choose to add 25/- in the ‘save’ slot and 25/- in the ‘Invest’ slot. These would teach them how to plan their finances.
The money in the ‘Donate’ slot is equally relevant because how else do you teach compassion to kids who rarely get to see how the other half lives? The only rule was they could not add anything in the ‘Spend’ slot until they had filled up the other three slots. The idea behind this was simple: Live within your means. This will go a long way to helping kids understand the concepts of saving and investing, in what is increasingly becoming a credit-card world.
Reward them sparingly
Chores are a great way to encourage responsibility and develop a sense of organisation, among kids. Some parents reward kids with a nominal amount for a task well done.
Now before you may think that is nothing short of bribery and kids should perform chores with no extrinsic rewards, hear me out. I am not advocating that you pay them every time they make their bed or hang the laundry out to dry or help with doing the dishes. No, these are all important life skills that they need.
What you could do, however, is have a weekly allowance for many chores done well. Reward consistency rather than the chore itself. And again, let them know that this money has to be saved up and used for a good purpose. Teach them to track accounts, income and expenditure in a diary or a notepad. This will also help with understanding finances and as they grow older, they can think about balancing cheque books effectively.
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Which of these ideas have you tried? Which of these have been effective? Do let me know in the comments.
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