The earlier we learn disciplined financial behaviours, the greater our ability to exercise these muscles in adulthood.
The old adage tells us that children do what we do, not what we say. This is never more appropriate than in the area of financial discipline, planning and saving. Children model their relationships with money on how they see their parents interact with financial matters.
Pocket money can be used to introduce financial principles into a household in a positive way. If you want your children to budget, save, give and invest, then you need to be doing the same things yourself.
A regular pocket money system can teach your child:
• The value of money – and the relative price of things.
• Good spending habits – accepting that money is gone once it has been spent.
• Earning – and understanding that making money can be hard work.
• Solid saving principles – makes use of both short-term and long-term goals.
• Borrowing – creating an understanding of the importance and discipline of repaying borrowed money.
Wise parents strike a balance with pocket money and avoid being too controlling or prescriptive regarding how their children spend the money. This enables the child to learn the key lessons of budgeting and saving.
It is important to agree on the purpose of pocket money: entertainment, gifts for friends, to save for specific items, and even to put money away for an emergency account. Allowing children to spend pocket money as they see fit, to save for medium term goals, and to budget empowers them. Later they can take control of their finances as adults. Being socialised with money as a child profoundly affects the possibility of becoming a financially responsible adult.
Investment behaviour can be germinated from a young age. Properly harnessed as a financial learning tool, pocket money paves the way to independence, teaching them the value of money and the vital lesson that instant gratification does not always lead to lasting enjoyment.
It’s easy to assume that all kids will fritter their money away, but you may be surprised to find your child is quite astute. Rather than wasting money on passing whims, he or she will quickly realises the power of saving and the good feeling associated with holding out for something really special.
Christelle Louw been an advisory partner at Citadel for 15 years and has 21 years of investment experience. She is passionate about the investment environment and enjoys making financial independence a reality for her clients. Her areas of focus are the corporate, entrepreneurial and female markets, having advised many inspiring women over the years.