Financial responsibility begins in the home with early budget management
Pocket money, saving and explaining the value of work are still central to teaching financial literacy to children
Balancing a chequebook may be a skill largely consigned to the past, but learning about money still remains a vital life skill for children to acquire. Given that it’s unlikely to be taught in school, it’s largely up to parents to pass on some financial lessons, at least if they ever want to wean their children off the “bank of mam and dad”.
But are parents doing enough? A recent survey from Danske Bank shows that just half of all parents regularly talk to their children about how to spend and manage their money – even though almost everyone responding thought that their child would benefit from such discussions.
So there’s an obvious disconnect between what is happening and what should be happening.
But, even though parents may feel ill-equipped to pass on financial advice, particularly given so many are still reeling from decisions they made themselves during the boom, a couple of simple steps can make a difference.
In theory, pocket money is an ideal way to teach your children about money. It’s a set amount of cash and they learn to understand what that money can buy them and that, if they want to make a big ticket expenditure, they will have to save up for it.
Joanna Fortune, a clinical psychotherapist with Solamh parent child relationship clinic, agrees:“I think it’s a good idea because it has many child development benefits: it encourages independence, it helps with budgeting and gives an appreciation of the value of money.
“It also allows children to decide on things they like, to make choices, and to know that if they really want something, they have to save for it,” she says.
But how much should you give? Statistics from Danske Bank show that 80 per cent of parents give, on average, €27 a month to 12 to 16 year olds, with 11 per cent giving more than €50.
Fortune advises that the amount you give should be influenced by your own family situation and not by what other children are getting. Not only that, it’s important for children to get the message that when it’s gone it’s gone and it won’t be topped up again.
“If you want it to be an effective development tool, you have to stick to your budget if you’re helping them to budget,” she says.
A regular payday also helps with budgeting and reinforces the message that the money has to last a week.
But should pocket money be used to encourage children helping out at home?
“You’d want to be very clear. If you’re giving pocket money that is earned by doing household chores or tasks, you should add the caveat that part of being in a family is the expectation that everyone helps out. You don’t get paid to be in a family,” she says, adding that while children may not get paid for everyday chores, you might offer them the opportunity to take on additional chores to earn additional money.
Children typically respond better when something is more tangible, which can be more difficult in this digital era.
With the days of banking books now long gone however, one way of recreating that level of engagement with your child is by using saving stamps from the Post Office.
You can pick up a “Cyril Squirrel” savings card in your local post office, and stamps can be bought for just €1 each.
So, every pocket money day could involve a trip to the post office to allow children to save a certain portion of their allowance.
Another option would be for parents to buy the stamps in bulk and allocate them each week, thereby saving on the weekly trips.
The only downside to the cards is that, to cash them in, they must first be lodged to an existing post office account.
Credit unions often also run saving stamp schemes. St Colmcille’s in Kells, Co. Meath for example, runs its “Sammy Stamp” programme, which allows children to buy stamps for as little as 50 cent, which they keep in their saving book.
As an alternative, or for smaller children, a money box or piggy bank can fulfil the same goal.
Fortune recommends that children save 10 per cent of their pocket money, so even if they get just €2 a week, 20 cent should be saved.
“It all matters; it’s all relative to their age and stage of life,” says Fortune, adding that, if there’s a busy week coming up where children might need more money than usual, they should be encouraged to save extra in the preceding weeks .
Establishing saving habits early will also help when children encounter the windfall that has become religious celebrations such as first Holy Communion and Confirmation, where a typical child will come into about €400.
Easier said than done perhaps in the current climate, but getting a job is a way for children to learn how the world of money works; particularly if they get taxed.
“I think getting a job is great idea,” says Fortune, adding that if children get a job they may no longer pocket money, so adds the following caveat:“I’d be very careful about how much disposable income they have – some teenagers have quite a bit.”
Children under 14 cannot work, but those aged between 14 and 15 can do light work during the school holidays, while 15-year-olds may do eight hours a week light work in school term time. Children under 18 are entitled to earn 70 per cent of the minimum wage, or €6.06 per hour.
Tools for money games
In the US, it seems that parents assign more importance to teaching kids money management skills, even sending them to summer camp to do so. At Camp Millionaire for example, which is an activity-based financial literacy programme , children spend the weekend learning how to invest in stocks and pay credit card bills and phone bills. Presumably to cover the cost of the course, which is $229 (€171) for a two-day session.
But if you would like to take a more formal approach to teaching your children about money, there are some other options which don’t involve such a significant outlay.
This is a website developed by Danske Bank which aims to introduce your child (aged between five and seven) to information about where money comes from, what money is worth and how to prioritise and save up. For older children, in the 10-12 and 12-15 age groups, controlyourmoney.ie will help with financial literacy and aims to do so in a “fun and informative” way.
Megan and the Money Tree
Written by personal finance journalist Emma Kennedy, this book aims to introduce children to financial concepts using an easy-to-follow story and fun activities.
Apps for your smart phone or tablet
Mindblown Life is a free app aimed at teenagers that allows the user to create an avatar, which they use to navigate through financial challenges such as dealing with debt and learning how to save. For younger kids, you can download a free app from countmybeanz.com, which gives children the chance to establish savings and checking accounts with a fictional currency called “beanz” .
The goal of this website from Ulster Bank it to help children learn how to be in charge of their money. It offers tips on teaching children about money, such as letting them work out how much you need to pay for a parking meter and letting them insert the money.