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It’s a great way to introduce children to the value of money but there’s more to handing over pocket money and letting kids spend it.
In the latest episode of The Pineapple Project, Scott Pape, aka The Barefoot Investor, says most people are “doing it wrong”.
“A lot of parents give money and the kids spend it and that’s the extent of it,” Scott told host Ella Hooper.
“It’s not about the pocket money. For me, most people do it wrong,” he adds.
Instead, “the real lesson” is how they spend it.
“I want my kids to be spending it and making mistakes,” said Scott. “That’s how you learn, by making mistakes. You want them to make mistakes when they are eight rather than 28.”
As well as spending it, there are two other things kids should be doing with their money.
“We want them to be giving money away because we want generous kids,” Scott explained. “And we want them to save.”
So how much pocket money should parents give their kids?
Scott recommends $1 per year. “So a five year old gets $5.”
How to teach children about money
Explain how money is earned
A common problem is that kids don’t understand the value of money, with many thinking it comes from a machine in the wall. One way to combat this is to explain how many hours you had to work to pay for certain things.
“This will help create a connection between time spent at work and money, as well as the fact that electricity and the internet cost your family money,” says the Money Smart website.
Let them pay for items with cash
Getting children involved in the physical transaction can help children to think of money as a physical thing, rather than invisible.
According to the Money Smart, “Children might see this invisible money as an abstract and unlimited resource rather than real money coming in and out of their family’s bank accounts.”
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