Teaching your children the value of money is probably one of the most important lessons you can pass on to them – and starting early can make a world of difference to how they manage their finances as adults.
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 practicing with their own money, children familiarize themselves with concepts such as saving for a rainy day, prioritising goals and delaying gratification, which might otherwise seem abstract or irrelevant,” says Thami Cele, Head of Savings & Investments, Absa Retail Banking.
This raises questions such as when to start giving your child an allowance and 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 is most important is letting your child take charge of how much of their allowance they spend and how much they save, enabling them to learn from their own successes and mistakes.
They can do this downloading Absa’s free and interactive MegaU App, which makes banking simple, rewarding and most of all fun and educational for children. The App is an amazing tool that allows parents to teach their children all about money along with the responsibility that comes with it.
Here are a few of Thami’s tips on giving your child an allowance:
- Decide how much to give as an allowance.
- Choose an amount that is appropriate for your children’s age.
- Consider starting with a small amount.
- Decide what expenses your children will have to cover with the allowance.
- Once, you’ve settled on an amount, you can transfer their pocket money using the MegaU App
- Decide if your children should work for their money.
Some families choose to treat an allowance as 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.
Other families don’t link the allowance to work, but instead use it as a tool to help teach their kids good financial habits. You need to decide which option is best for your family.
- Be clear about the rules.
If your children receive an allowance for doing chores, make sure they know which chores they need to do to earn their allowance and 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 allowance on 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 allowance in small change. This makes it easier for children to divide the allowance into what they will save, spend and share with others or charity. Alternatively, opt to buy the kids airtime and data via the Absa MegaU app, instead of cash.
- Pay teens less frequently.
When your children are teenagers, pay them their allowance every 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. If your kids are using the MegaU app, you as the parent will be able to view their balance as well as their transactions, meaning you can help them manage their money more effectively.
- 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’ allowance gradually as they grow older. As the allowance increases, let your teens be responsible for paying more out of their own pockets. This will help them to learn how 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 allowance will 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.