Kids + money
Getting Started with Pocket Money
Teaching kids about money is best done with real life practice. I use the bucket strategy (also called jar or envelope approach) when it comes to money strategies and it works really well for kids too. So before you jump into giving kids pocket money you need to put the right tools in place.
A money box
A bank account
A giving jar (optional)
Get these set up before you start giving your kids money, they need to know there is a place for their money to go.
I’m a fan of giving your kids pocket money to teach them about money not as a reward or payment for doing chores. You can then offer extra money for doing extra jobs or one off type work when they are saving for something special.
Set a regular amount and time period. A good starting point is their age e.g $5 for a 5 year old, you can increase it each year. It could be weekly, fortnightly or monthly whatever works for your family finances.
The time period should reflect what you expect them to do with the money e.g if they are expected to buy their treats or small toys with it then weekly would work best, this is a personal choice.
Show them what to do with money
Hide some: not quite hiding it, more of a future savings account. Let your kids know they have a bank account just like you do, explain that you use your card or phone to access your money when you need it. Tell them that you are going to take $2 of their pocket money each week and put it in their bank account for them, so when they are older they will have money they can access with their phone or card. Depending on how tech savvy they are, you can start showing them their bank balance on your phone or computer.
Save some: this goes into the moneybox so they can save up for a toy or clothing or experience they want. When they are younger, you can choose the amount, as they get older and more familiar with the process, they can decide how much goes in the moneybox. This is also a good place to put birthday or other gifted money.
Spend some: this goes into the wallet for day to day spending. When they are with you at the shops and want something; a toy, ice cream or drink, whatever it might be, they can use their own money. Explain that is what the money in their wallet is for and encourage them to take it to the shops when you go out
Give some: suggest a portion goes into the giving jar so that when it is full you can help someone with that money. This one is optional and comes down to your family values. If you choose to do this then pick a charity upfront so you can talk about where the money is going.
Now you have created a “bucket” system for your children to learn and apply. This is the foundation for money strategies that will serve them throughout their whole life.
If you start at age 5 and save just $2 a week into their bank account and increase it by $0.50 each year when you increase their pocket money, they will have over $3,400 in their bank account on their 18th birthday.
You can supercharge it by contributing extra money from their money box when it is full, encouraging them to do extra jobs at home for money and of course starting to work when they are old enough and adding to these funds.
This doesn’t mean you should start when they are 5, you can start the bank account and money box from birth, introduce the wallet around 3, then choose when you think is the right time to start pocket money.
What are you waiting for, get the bank account set up, get the moneybox and wallet ready and start teaching your kids how to manage money.
By Keryn Batsilas
The advice provided on this document is General Advice Only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If any products are detailed on this document, you should obtain a Product Disclosure Statement relating to the products and consider its contents before making any decisions.