5 Lessons From Pocket Money

October 27, 2009
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For some children, pocket money is a necessity, used to pay for lunches and bus fares every time they go to school. For others, it’s a luxury—their own money to spend however they choose.

Either way, pocket money gives parents an excellent opportunity to teach kids the value of money as well as the basics of budgeting and saving. Money management is an important skill that will prove useful all through life and the sooner children grasp the way money works, the better.

When our seven-year old son started asking for one Transformer toy too many, we decided that it was time he received a monthly allowance and learnt to be responsible for his own purchases. That was about three years ago and it’s worked fairly well so far.

He has learnt that he needs to keep his purchases within his means and to defer gratification until such time that he can afford it. He is also adept at calculating the amount he has available for spending and comparing that against the cost of any proposed purchase.

However, the biggest lessons that he seems to have gained from this whole exercise of managing his own money have to do with the decision-making process involved in whether or not to actually go ahead with a purchase.

Do I really want this? Will I still like it one year from now? Two years from now? Have I gotten the best price possible on the item? Should I buy it now? Or wait another two months when the prices might come down? Should I earn some money to pay for the purchase so that I don’t need to dip into my savings?

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By managing their own money, children learn to make choices. They learn that life is not always as straightforward as buying whatever you want every time you want it. They learn that there are many issues and options to consider before spending on a large item.

But more than spending wisely, money offers an excellent opportunity to teach children about helping others less fortunate than them. Some families encourage their children to divide their money into three portions: one for charity, another for savings/investment and the third for spending.

When my son (the same one who hankered after Optimus Prime) was about eight, he came across a picture of a dishevelled looking boy in a magazine and promptly informed me that he would like to help him.

It was a World Vision advertisement (looks like the power of advertising works for the good, as well!) and after some explanation about what the organisation does, both he and his sister decided to apportion a third of their allowance every month, for the next 12 months, to send to a Lebanese boy.

The experience gave them valuable lessons about commitment and what it means to put your needs second to someone else’s—halfway through the year, they started to feel the pinch of having to give away part of their pocket money and asked if I could take over their payments (the answer was no).

Jessica Ong, a stay-at-home mother of two girls who teaches a weekly Money Savvy class for children, feels that a good way to help children appreciate the value of money is have them earn it. From the time she turned six, Lee Ling—the elder of Jessica’s two girls—has been cleaning her dad’s office for RM20 a week. Younger sister Lee Sa gets RM6 for the simpler jobs such as wiping the tables.

“The sense of pride they have in their ability to earn is amazing,” she notes. “I think kids should experience a bit of discomfort to appreciate great things in life. I am not a gentle mother, and I told my kids that a bit of suffering is fine,” Jessica explains.

With TV and internet advertising now so potent and peer group influence so strong, children are pressured daily by consumerist tendencies to possess the latest toys, iPods, handphones, clothes and other trendy must-haves.

While it is impossible for parents to protect their children from these psychological temptations, allowing a child to manage his own money can help him differentiate between the things that he genuinely wants and those that he thinks he wants because other people say that it’s cool to have them.

Jessica normally ignores any request for a big purchase for a good six months. “If after six months, they are still passionate about their purchase, I conclude that their request is justified.”

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When her daughter asked for skate shoes that cost RM450, Jessica waited six months, then paid for the skate shoes while her daughter contributed RM65 from her savings for the protective gear. “This way she is invested in her pursuit. She can’t take her hobby lightly as her money is at stake, too,” Jessica says.

Children are great imitators and will mimic their parents’ attitude towards money. If we are careful and treat money with respect, our children are likely to do the same. If we are careless with money and frequently spend beyond our means, then they, in turn, will be equally imprudent.

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