Teaching money basics

How much pocket money should your child be given? Should he be given a daily allowance? Should his allowance be linked to chores? Here are some handy tips for parents to help their kids realise the true worth of money

Children hear us constantly telling them: "Money doesn't grow on trees" but that doesn't seem to have any effect. The very next minute they ask, "But why can't I get new sports shoes? Everyone in class has them!". Often parents give in because they too feel the social pressure, and wonder: "Am I too strict? After all, most of Milly's friends have a mobile phone, even though they're only in the fourth grade." Sometimes parents disagree between themselves what's the best way to teach children the value of money. Dad might say: "Don't give them pocket money, in any case we buy them everything"; Mum might counter this with "He's just a kid, let him have what he wants". Often parents 'programme' children by buying them a toy with every trip to the grocery store. So what's the best way to raise money-savvy kids in an environment of excessive affluence? Here are some tips from child experts.

Start early

Children are ready to learn about money (and even about consumer behaviour) between the ages of seven and eight. By this age they can discriminate between the different coins and know their value. They also have some understanding of how money works in the real world, though they may still tell you "Why can't you buy me that car? You only have to take money out of the bank and I know you have lots." Seven-year-olds definitely need direction and supervision from parents in how much money they spend and where they spend it. You need to lay down rules for the number of chocolates he can buy in a week. "What you are aiming for," says Janet Allon, "is a balance whereby you require them to buy more of their "wants" while still providing for their "needs".

It's not about control

Sometimes it's good for your child to save up for something he really wants, like a videogame. Don't react by saying, "That's a waste of money", because that takes away your child's thrill and excitement of having his own stash. Parents also need to realise that children vary in how they choose to spend their cash: one child may choose to spend everything within the first week, his sister may choose to save carefully for that one really prized game.

Spread it out

Whether or not children should be given 'pocket money' is a personal family decision but the allowance system can provide an excellent training ground to help children understand the value of money. Neale Godfrey, writer of Money Doesn't Grow on Trees (Simon & Schuster), suggests a dollar for each year of a child's age, but families should choose an amount that would suit their individual budget and culture.

Godfrey suggests dividing the money into four jars: 30 per cent goes into long-term savings; another 30 per cent goes into personal buys; and ten per cent goes into a charity of the child's choice. The balance 30 per cent Godfrey calls "quick cash" - the next time your child asks you in a shop "Dad, can I buy that music?" you can reply, "Did you bring your quick cash?". Rather than just giving kids more cash, it's better to give them more control over how to spend their money, and the earlier you start this habit, the faster your kids will learn the value of money.

One question that parents often ask is whether or not to link allowance with chores. Most experts would say "no", because helping around the house is part of belonging to a family. However, taking away some part of the allowance when your child breaks a house rule is an effective disciplinary tactic.


Dr. Onita Nakra has a Ph.D. in Educational Psychology from the University of Minnesota, U.S.A. Her specialisation is in assessment, diagnosis and intervention methods for children with special needs.