Why pocket money is a bad idea

While your kids may *think* they deserve pocket money, Amanda Morrall has an alternative way to teach children financial lessons.

Full disclosure: I'm not a fan of pocket money. As the mother of two teens with bottomless pits for stomachs and never-ending school expenses, I feel that pocket money is a perversion of personal finance. Even when they were younger, ate less, and were more willing to please. Weekly allowances are the stuff of trust fund babies and Hollywood sitcoms. Money trees don't exist, so why would you pretend to be one? Sure, there are windfalls like lotteries, bonuses, gifts, and inhertiances (if you're lucky), but no one gets paid for doing nothing. Harsh, perhaps but then, so is life. Financial lessons are no different. In fact, the financial lessons for adults who can't, don't, and won't learn to manage money can be brutal and have far-reaching implications. S0 how does one "teach" about money without playing the benevolent banker?

 

Never underestimate how much a child learns through observation and association

Kids are sponges. They're watching, learning, and emulating, even if you're totally unaware of it. If you want to have the biggest impact and influence on your child, make sure your own financial hour is in order first. Your own behaviour will leave a bigger impression than you expect. Conversations around money are another way to educate, for free! That includes direct lectures, Q&As, and also the everyday discourse you may have aloud with yourself, your partner, or your family. If a child is constantly hearing negative talk around money, they'll have a bad association with it. And if there's no discussion at all, well, that says a lot too.

 

Create opportunities for your children to learn about money

Create scenarios for your kids where they make choices for themselves. That can involve giving OR loaning them money (periodically), or allowing them to spend money they were gifted and see what occurs. Kids figure out pretty quickly that you need money to buy stuff, and they know Mum and or Dad work for it. If they ask what they can do to earn money around the house, decide together how they can earn. Don't make it too easy — or too hard. Often this becomes a mini-budgeting exercise as they figure out how much something that covet costs, and what they need to do to earn that. This is how it works in the real world, and you're setting them up for success when they get the hang of delayed gratification early.

 

Save their "pocket money" for them

If you're thinking I'm a mean-spirited mum, I'll let you in on a secret: With the $20 a week I might otherwise give away to my kids as "pocket money", I instead deposit it into their KiwiSave accounts. Boring for them, but investments from birth mean they'll be way ahead of the game by the time they start working and take over the accounts themselves. When they're old enough, you can also use KiwiSaver as an education tool on compound interest, investment markets, and fees. They may not thank me now, but when they get into their first home faster because they've got a decent desposit by the time they're 30, the appreciation will be there, I'm sure. Let grandparents, aunties, and other relatives play the happy banker with envelopes of cash for special occasions. You'll always have first rights as the Tooth Fairy!

 

Written and researched by Amanda Morrall - Head of Communications and Education at Simplicity NZ Ltd. Amanda is an experienced media commentator, editor, and author.
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