Child’s play: money management for kids
When we started giving pocket money to our kids, they would often have to remind us; the problem was, we very rarely had cash on us – money is increasingly electronic typically. Being a financial planner, I looked at this as being in arrears with my children – not a position I was happy about! It just wasn’t going to work long-term.
You’re never too young to learn!
So I decided to approach it like I do everything else financial: make it automatic. We set up a monthly standing order (from our bills account) which goes onto a card, an Osper card, which is a children’s pre-paid debit card. They can use it in shops or withdraw cash from an ATM.
So on the 1st of every month, they get ‘paid’. However, like many parents, we’ve based pocket money on the completion of certain household chores – things like the recycling and emptying the rubbish – if they don’t do their tasks, I will amend the payment! Fortunately that’s only had to happen once so far, and then they realised I was being serious…
For us, the tasks are really important. My wife and I didn’t want them to feel entitled to the money, we wanted them to feel they’d earned it, providing an important lesson from the start: work hard, get rewarded. In our system, we link their ‘pay’ to their age – £2 per month per year of their age (my son is 12, so he currently receives £24 per month).
From this, we expect our children to buy their ‘wants’: toys, stickers, sweets and so on. They’ll take their card when we go to the shops and buy such things themselves. I have an app on my phone that lets them easily check their balance, so they remain in control.
Setting limits, teaching skills
We have a policing mechanism in place, which is that if they want to buy something that costs more than their age – so over £12 for my son at present – they have to check with their parents. That stops them buying rubbish unnecessarily.
They’re learning a skill, so we give them some free rein but at the same time we’re encouraging them to think about what they’re spending their money on. We try to have them ask the same questions that are my mantra when it comes to adults taking control of their expenditure: do you really want it? Do you really need it? Can you buy it cheaper elsewhere?
Sometimes we’ll ask them to do a 24-hour check for larger purchases; sleep on it, and see how you feel tomorrow. And we’ll also encourage them to look around to find a better deal for the same item. We’re trying to teach them the skills to manage their money properly, so that when they leave home and they have to manage these things themselves, they’re in a position to do so.
When my son gets a phone next year, rather than us simply paying it, we’ll increase his pocket money but he will be responsible for paying his phone bill. He’ll have to make sure he’s managing his money to cover the phone as well as his wants.
Slowly but surely, without it being boring, we’re teaching them money management. I recommend this to all my clients too.
Why should parents do this?
During the course of our lifetime, most people will have more than £1m go through their account; sometimes it’s way in excess of that. Earning the UK average wage every single year will see around £1.3m come your way by the time you reach 68. And nobody teaches us how to manage that.
It’s the same as eating habits, if nobody tells us about nutrition and that it’s important to get some kind of balanced diet, then we simply don’t know about it.
If nobody tells us that you can’t spend all your money in the first week of the month and that you have to plan, then you have to learn it the hard way.
I think it’s up to parents, not schools, to teach our children to manage their money.
The problem of course is that some parents aren’t confident on money management. That’s one of the key reasons why I wrote my upcoming book, The Money Plan, because I want to help more people be great at this stuff. I love what I do, and the great thing about it is: it’s universal. When I’m talking to people earning over £1m per year, and when I’m talking to people who are earning minimum wage, and when I’m talking to my children, the processes are the same, just with different amounts of 0s at the end of them. This isn’t about strategies for the elite – it’s about helping EVERYONE to be able to enjoy their life more without having to worry about money constantly.
Most people feel more successful and less vulnerable when they’re in control of their money. The principles are the same regardless of your income. And if you reduce it down to the most base level, it comes down to one thing: spend less than you earn.
It’s about forming habits. Habits make us, and habits break us.