Teaching kids about the value of money
Posted February 2016
Most kids will go through a stage of thinking money just comes out of the money machine and doesn’t cost a thing, or if you don’t have cash just use the magic plastic card…
It’s important to gently steer them straight and explain that money doesn’t magically appear, it comes from hard work and unfortunately it's limited. Make them aware that there are things to pay for that they may not see e.g. living costs, power, internet, insurance etc.
You don’t need to go into too much detail, just enough so they understand that all these little costs help keep them safe, healthy and happy. Have open discussions about where your money goes, when they ask for a treat explain that you have money but it needs to pay for groceries to feed the family, power to keep us warm and ensure the TV works and roof over your heads.
Providing kids with pocket money is a great way to teach them about the value of money and how to manage their own budgets. The amount should depend on the age but remember that you are setting an expectation. Giving $10 a week to a 5 year old will mean that as they get older you’ll either need to fork out a $100 when they turn 10 or they won’t see the value in it and decide it isn’t worth doing their chores for a measly $10 anymore.
Whatever amount you decided to pay ensure they set a goal for their money and save a portion to go towards their goal with a little bit left over to spend (with your permission). When it comes to spending their money allow them to make mistakes and learn from them but also try and direct them towards making good choices.
A great experiment that our Jimmy J school champions use at school presentations is to empty a bucket full of lolly wrappers on to the floor, then having a bucket full of gold coins and tip them out – which would they rather have? Empty wrappers or money!
Of course, at the end of the day they are kids and they don’t have the will power of (some) adults. Remember that you are the parent and you have the final say on how and when their money is spent.
In the digital age, more and more transactions are completed online without the need for cash. Although it is important to learn the value of cold-hard cash, it’s also important to teach your kids about how money works for you when it’s not in your hands.
Instead of giving the pocket money in cash, set up a bank account for the kids and have an automatic payment transfer the pocket money each week. Log into the bank account and show your kids how their money is growing. Explain that once they reach their goal, they can go to the bank and withdraw it.
This is a great way to remove temptation whilst allowing them to personally experience the satisfaction of achieving their financial goals.