Talk to your kids about money


How much pocket money?
Of all the unsettling questions I thought my girls might ask as they grew up, how much ‘pocket money’ they should be getting was not one I anticipated. But one night recently, as I was reminding my 10 and 13-year old girls during dinner about the three uses of their pocket money – save, spend and give, my 13-year-old quipped “But baba (dad), my friend gets R1000 (US$100) a month.�? Since her pocket money is not even half this amount, suddenly, I had to explain how I decided on this amount. Although I could explain this well, I suddenly realised that I had never checked with other parents how much pocket money they gave their kids. Seeing how unsatisfied with my response my daughter was, and realizing how uncomfortable and unprepared I felt tackling this issue with her, I silently vowed to do more research on this matter.

The 2013 T. Rowe Price 5th Annual Parents, Kids and Money Survey (http://media.moneyconfidentkids.com/wp-content/uploads/2013/03/PKM-Survey-Results-Report-FINAL-0326.pdf) put me at ease since it revealed that only 47% of the surveyed parents gave their kids an allowance and of these, over two-thirds (68%) gave their children an allowance (pocket money) of less than $10 per week. The research’s finding on what kids do with their allowance was insightful for me – 66% of the kids surveyed save their allowance to spend later on a short-term goal and 24% spend their allowance immediately. Given the importance of giving as an early financial behaviour, it was disappointing that only 5% of the kids donated some of their allowance to charity.

How old should kids be to learn about money?
As a qualified financial planner, I advocate that parents should start early and have frequent money conversation with their kids. How early is early you may ask? A report (https://www.moneyadviceservice.org.uk/en/static/habit-formation-and-learning-in-young-children) by researchers, David Whitehead and Sue Bingham at the University of Cambridge revealed that:


  • By three to four years, children know what money is for within a shopping context and can explain that it is used to buy things;
  • By four to five years, children understand that they need to pay for merchandise, but may not understand that coins have different values;
  • By five to six years of age, children understand that some denominations do not carry enough value to buy some items; and
  • By seven years of age children begin to understand money can be exchanged for goods and that ‘change’ is returned by the shopkeeper only when denominations larger than the cost of the item are offered by the purchaser.

The 2013 T. Rowe Price 5th Annual Parents, Kids and Money Survey revealed that nearly three-quarters (73%) of parents have regular conversations with their kids about money with 28% and 45% having these conversations very often and somewhat often respectively. This was in response to the question: How often do you actually have conversations with your child about money and the importance of spending and saving on a regular basis?

When to talk to your kids about money
In my household, I do the shopping for everyday staples and some of the discussions with my girls go like this:  “The reason I chose the full chicken rather than the chicken pieces is that it costs much less per kilogram and tastes the same,�? “Do you see that a pack of 9 toilet rolls costs more per roll than a pack of 18?�? and “Girls, is this something we really, really need?�?

For my 13-year old daughter who inspired this post, the next lesson is: “the sooner you start saving, the faster your money can grow from compound interest.�? I want her to understand why if she saves R1200 every year starting when she turns 14, she would have R155 000 by age 65, but if she starts at age 24, she will only have R60 000 by age 65. And if she starts at age 34, she will only have R23 000 by age 65. The impact of saving R100 per month instead of R1 200 per year will be her next lesson.

Studies clearly show that children as young as three years old can grasp financial concepts like saving and spending.  To build the foundation for children to live financially well lives, they need to be taught the essentials about money at an early. Since parents are by far the number one influence on their children’s financial behaviours, it’s up to them to strive to raise a generation of mindful consumers, investors, savers, and givers.

You might want to read about these money lessons for teenagers.