At some point, you need to think about teaching your children about money; it’s vital for their future understanding and could prevent them from getting heavily into debt. One of the best life lesson’s I ever had was about the value of money, more specifically the exchange for time. It gave me a strong work ethic and knowing my worth.

Without getting into the when I was young territory, the standard of spending and expectation for Christmas and Birthdays is on another level to my childhood. There is more pressure than ever on parents to gift the latest technology and games. Debates about gifts from Father Christmas aside, do children even understand how hard people have worked to earn the money for such expenditure?

I am guilty of spoiling my children, I know that. It’s partly driven by guilt of working too hard, plus making up for my own frugal childhood. At Christmas I made the mistake of giving them the Smyths catalogue for some ideas, and it was clear from that point that some understanding on concession was needed. It’s also driven with rising bills and cutting unnecessary costs like overpriced magazines.

So after advice from a good friend, I’ve introduced for my 6 year old their concept of pocket money and wanted to share the idea.

kids saving money

She’s always helpful but I want to install the realisation of what time is worth. I’m aware of the contradiction of doing this by paying well below minimum wage, but its the comprehension I want her to grasp. Here’s what I’ve done:

Each job earns money, and this includes things like helping with putting the laundry away, helping me lay the table for dinner, tidying her room, so nothing too major in my eyes that should not be done at that age. These can be varied, and even scaled so that only extra chores are paid depending on your childrens age.

After each job I give her the physical cash, as this is equally important until we have a cashless society. We had a practical lesson of looking at money and it’s value after she got upset when the tooth fairy left just one coin and not two (£2 coin). This is so she can see the spoils of her labour rather than imaginary numbers, as lets be honest this makes it more real.

Then at the end of the week we sit and count it up then she has three options:

  1. Treat herself to something nice
  2. Put it in the Bank of Dad savings where it can get 10% interest per month and be saved for a future big purchase
  3. Gift it to charity of her choosing.

There is only one rule, there is no credit. If she wants something and doesn’t have enough, she’ll have to work harder. This is intentional to drive future work effort and makes later teaching on how to avoid debt and use credit cards correctly easier.

So now, when she asks weekly for that £5 magazine, she knows she has to do a fivers worth of chores first. And if she wants that big purchase when it’s not her birthday or Christmas, then it means saving up which we track in a spreadsheet for her.

In theory, this should teach prioritising wants early. And if continues into teenage years I can up the money given and then take board and lodgings into account.

gifting to charityThe reason for the 3 options are:

  1. Spending the money – The simple concept of associating time spent vs the cost of that item.
  2. Saving – That sacrificing the small unneeded things helps get the big ticket items quicker. This is the concept of budgeting.
  3. Charity – That happiness doesn’t always come from materialistic things, but also from helping others.

The last option is important to me, that she understands that not everything you do has to be paid. That doing things from the kindness of your heart gives a tremendous amount of value too. To show this, I’ll mock up a donation thanks in her name, and explain where that money goes which is easily done as most break that down for you.