Pocket money for a two-year old? How to teach children about money

If your children, like so many, enjoyed a Christmas of munificence, the sight of an overflowing recycling bin and ever-too-swiftly discarded presents may have left you with a slight sense of the Grinch. But if cutting down on the amount of presents your children receive from friends, family and Santa is out of the question, how about opting for an alternative tack: taking the time to instil in your children the value of money.

Yes, they may still end up getting too much in your eyes, but they may also have a greater appreciation for how much things actually cost. And you never know: convincing your offspring of the benefits of financial prudence might just help you keep your own finances in check this year.

It is hard to dispute the fact that childrens’ expectations today have risen sharply when it comes to Christmas and birthdays – and even in day-to-day life, when eating in a restaurant or getting a takeaway is not an unusual occurrence.

If you’re a parent, you’re probably already familiar with a child coming home from school bemoaning the girl or boy who received 20 presents from Santa or €1,000 for their communion.

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"My sense is that children seem to get much more compared to previous generations; it's probably a function of prosperity and the consumer society we live in," says financial adviser Simon Shirley. A parent himself, Shirley's seven-year already has his eyes on his Christmas 2017 wish list.

This environment of relative bounty means that it has never been more important to educate children about just where all those presents come from or risk having them reach adulthood unable to adjust when the parent turns off the financial tap.

For Marah Curtin, head of client engagement at Davy Stockbrokers, it's never too young to start teaching your children about money. "The value of money, how to earn it, and save it, and maybe even share some with those less fortunate, are all good lessons to learn as early as possible in life," she says.

Curtin runs Davy's Cents for Kids programme, aimed at teaching young children about money. She says that even very young children do grasp the basic concepts of money and budgeting.

And the earlier you can start, the better.

“We’re not raising children, we’re raising responsible adults,” she says. “One of the biggest mistakes is to wait until they’re in their teens to start talking about money.”

Pocket money at two

Whether to give weekly pocket money, how much, at what age, and whether it should be linked with household tasks is something most parents will grapple with at some point. Not Curtin, however. When her eldest child was just two years old, she started giving him an allowance.

“A weekly allowance is great way to help kids to manage their money,” she says. “There is no better way to help children learn to manage their money than to make their own mistakes.”

She suggests that children should get €1 per year of age. So, for example, a five-year old would get €5 a week and a 10-year old €10. “As the child gets older, the money increases, but so do the responsibilities associated with receiving that money.”

And don’t be tempted to put your hand in your own pocket when the inevitable happens and the child spends their money too quickly. If they waste all their money on Pokémon cards on a Friday and have nothing left for a treat on a Saturday when their siblings are eyeing up an ice-cream, let them suffer.

“Don’t bail them out!” advises Curtin. “Too often parents don’t express that there are limits.”

Sometimes, we as parents take the easy road; when you’re busy, stressed, under pressure, isn’t it easy (if you have the means) just to buy whatever your child needs rather than make them to wait to save for it, and possibly endure the associated whingeing that comes with it?

Maybe, but it’s not always the best option.

This Christmas, Curtin’s 12-year-old learned a life lesson when he found a gift under his tree that he may not have dreamed of – his school uniform. Earlier this year, he lost his school tracksuit and, rather than putting her hand in her pocket to buy him a new one, Curtin put it on his Santa list. So, while he may have gotten all the traditional trappings of a 12-year old as presents this year, he also had to sacrifice one of his gifts.

“It’s a big lesson for him,” she says.

Pleasure of saving

For many kids, the joy of getting money is in spending it. But others will take as much pleasure in saving it. The key is instilling the benefits of delayed gratification and encourage those who are loathe to save to do so.

A nine-year old getting pocket money of €9 a week, for example, won’t immediately have enough for a new Barcelona or Leinster jersey. But if they are taught how to save, and manage to do so, the benefits are twofold.

“It’s quite satisfying for a child to get something they want to buy with their own money; it’s an incredibly important goal,” says Curtin, “It’s empowering”.

Ron Leiber, a New York Times personal finance writer and author of The Opposite of Spoiled, suggests that parents give their children three money banks, rather than the traditional one, with each one labelled "give", "save" and "spend".

To make it even easier for kids to understand the impact their saving has, use transparent jam jars so children can see their money grow. It also introduces the concept of giving something away to charity.

So, if a child gets €9 for example, you could encourage them to put 20 per cent (€1.80) in the “save” jar, 10 per cent perhaps in the “give” jar (which can be donated to a charity of their choice at the end of the year) and the rest in the jar for spending.

When it comes to teaching children about money, many parents may be looking to recreate the days when they got their Henri Hippos and little blue savings book from the bank. But for younger children especially, understanding the link between a bank account and their money may be a step too far.

“It doesn’t always make sense to open an account,” says Curtin, pointing to the charges and minimal interest. “It can actually cost to have money in the bank.”

Instead, keep it simple by adopting the money bank solution outlined above. “I really think the power in teaching children about money is keeping it tangible,” she says.

SSIA for the home

So, instead of earning maybe €1 in interest every year, an easier and more concrete way of encouraging your children to save is by running your own family-style SSIA scheme. This could see you offer an extra €1 for every €10 saved, or you could add a €5 to every €20 saved, or some such approach.

Anther option is to encourage children to convert their money into “Cyril Squirrel” savings stamps at the post office. You can buy a stamp for just €1, and younger children will enjoy sticking them into a savings card and watching them grow.

The downside of these stamps is that, to cash them in, you have to lodge them to an existing Post Office deposit account, which you may not want or need. And savings stamps may not be as tangible a sign for a child, in the way a tower of €1 coins in a jam jar is.

For older children, a bank account can be a useful way to introduce them to the formality of finance, or even a safer place for their funds once they start raking it in after their communion.

“I remember vividly I got £29 for my communion and opened an ICS building society bank account with it,” recalls Shirley. “It’s a good way to gain an understanding of money and get into the savings habit”.

When the time comes to buy new football boots, a new swimsuit or school bag for the child, rather than go off and do it yourself, get the child involved in shopping around for the best price. Thanks to online shopping, it doesn’t necessarily mean a tortuous expedition to your local shopping centre.

“Take advantage of teachable moments,” says Curtin, who adds that the weekly shop is another good place to get children involved in looking for the best value.

For tech-savvy older kids, there are plenty of apps available that they might enjoy using and which will help them track what they’re spending their money on.

Financially sheltered

It may be tempting to keep children sheltered from the harsh realities of your family’s finances, where you may not have enough money for everything and struggle to stay afloat. After all, why burden them with this knowledge when still so young?

However, a little knowledge, delivered in a child- or teen-friendly way, can offer an important early exposure to adult life.

“In my teenage years, I understood how much my father was earning. The sooner they [children] are exposed to this, the sooner they grasp it,” says Curtin, noting that some people may feel ashamed to tell their child that they don’t have the money for something.

“We don’t want to worry children, but it is okay to say ‘we don’t have money for this because we’re saving for this right now’. The more we talk about decisions, the more our children become aware.”

Shirley suggests taking it a step further and equating something the child wants with the amount of work needed to generate it. So, for example, if a Lego set costs €100, then this could mean 11 hours work in a shop.

“Childhood should be carefree,” he says. “But a child should have some sense of what the family can afford and not afford.”