One of the most common ways parents teach little ones about financial management is by giving them pocket money or an allowance.
“To learn how to manage money, you need money, even if you just start off with a little. By practising with their own money, children familiarise themselves with concepts such as saving for a rainy day, prioritisinggoals and delaying gratification, which might otherwise seem abstract or irrelevant,” says Thami Cele, Head of Savings & Investments, Absa Retail Banking.
This raises questions like when to start giving your childan allowanceand how much you should be giving them.
Some parents and financial advisers agree that you should start as soon as they are able to count – around the age of five or six.
How much you choose to give them could be based on your family’s unique financial situation and monthly living expenses. What’s most important is letting your childtake charge of how much of their allowancethey spend and how much they save, enabling them to learn from their own successes and mistakes.
Cele offers these tips for managing your children’s allowance:
Decide how much to give as an allowance
Choose an amount that is appropriate for your children’s age, but consider starting with a small amount.
READ MORE: How to raise money-savvy kids
Decide what expenses your children will have to cover with the allowance.
Decide if your children should work for their money
Some families choose to treat an allowanceas pay for work, and their children must finish certain chores before they get paid. Tweens and teens can capitalise on this financial avenue for earning pocket money by requesting tasks from their parent to earn pocket money.
Be clear about the rules
If your children receive an allowancefor doing chores, make sure they know which chores they need to do to earn their allowanceand which chores they need to do, simply because they are a member of the family.
Decide how often you’ll pay the allowance
Try to give your children their allowanceon the same day every week or month. This allows them to plan, budget and save for future expenses.
Pay in small change
Consider giving the allowancein small change. This makes it easier for children to divide the allowanceinto what they will save, spend and share with others or charity.
Pay teens less frequently
When your children are teenagers, pay them their allowanceevery two weeks or monthly. This forces your teens to manage their money over a longer time period and will help them plan and make choices about how they spend their money.
Decide what your teens will pay for themselves
Agree with your children on what they have to pay themselves using their pocket money. For example, you may agree that they need to pay their own entertainment costs such as going to the movies.
Consider raising the amount of your teens’ allowancegradually as they grow older. As the allowanceincreases, let your teens be responsible for paying more out of their own pockets. This will help them learn to budget.
Decide what to do if your children ask to borrow more money.
If your children ask to borrow money before their next allowance, talk to them about credit, loans and interest. If you decide to lend them money, consider charging a small amount of interest. This will help them understand credit. It will also teach them that it usually costs money to borrow money.
Decide when to stop giving them an allowance
Make it clear to your children when their allowancewill stop. When you stop giving them pocket money, make sure they understand what you’ll continue paying and what they need to cover by getting a part time job as an example.