Kids and money
Your son goes out and spends his entire budget and has nothing left for clothes. Your daughter asks for more pocket money. Do you have an answer? Or what if your child is a non-spender? How do you deal? How do you teach kids about money, personal finance and allowances? These questions are all part of the financial education of your children.
Financial training of kids is important
Financial training of children is important. There are a couple of reasons why.
- Financial education is important because lots of children have debts.
- Learning to deal with money means that you can make mistakes. Irresponsible choices at a young age may be instructive. They can prevent someone later in life for making wrong choices and get financial trouble.
- It also appears that young children who themselves learn to choose where they spend their money on, less frequently get financial trouble.
Teaching kids about money means they learn:
- To live with a limited and fixed amount over a certain period.
- How to fit wishes and income.
- Making choices between what is needed and what they would like.
Pocket money and clothing allowance
With pocket money and clothing allowance you can prepare your children for financial independence. Children receive a limited budget for a certain period. They learn how to save money for larger expenditures.
Some rules of thumb
- Provide the same amount at a fixed time.
- Agree in advance how long they have to live with their pocket money, for example one week, month or quarter. And stick with it!
- Be clear about what they must (or not) pay with their money
- Keep in mind that pocket money is not a paycheck and should not to be used as a means to punish.
A good idea is to put your agreements on paper, a pocket money or allowance contract. Print the contract and sign it together.
Teach your children to become resilient against advertising
Children are easily led by advertising. Manufacturers know this and know how to tune their advertisements. Not advertisements but what they like or consider important should be the major factor to decide where they spend their money. You can help them by watching advertisements together and talk about them. Kids should also discover that advertisements not always tell the truth.
Borrowing money is more and more accepted among children. Usually itâs about small amounts but sometimes they borrow money to buy a scooter or for a vacation. This can lead to debts. Is borrowing money necessarily wrong? Not if it is within the budget. Later in life we all have to deal with borrowing for example for a mortgage. You have to teach your children (maybe even yourself!) what is responsible borrowing. How long and how much has to be repaid and can this be done within your budget.
Set a good example!
Teaching kids about money can be difficult but the method which works best is to set a good example!