The value of money is always changing. As adults, we understand inflation, conversion rates and the strength of currencies. Kids, on the other hand, understand the value of money as expressed by their parents.
Kids learn how much their parents can afford to spend from when they’re very young. Some parents are honest with their kids about their financial condition, others do not want their kids to know about financial hardships.
Children, however, are very intuitive and will definitely figure out what the financial condition of the family is.
A child from a family that never lacked money but has suddenly met with financial hardships will find the restrictions on what they can spend troubling. This is usually because they’ve never realized how important money is to do the most basic things. In these situations, parents must sit down and explain the situation to their child so that they may understand how they must spend until things are financially stable again.
Adults view money as they did when they were children. It is my understanding that if as a child there were tight limitations on how much you could spend; as an adult, you are generally more careful with money because you’ve experienced life on a tight budget.
The BIG questions:
So as a parent, should you be absolutely honest with your child about the financial situation of the family? Or should you not let them know at all? Or should you let them know how much they can spend but not let them know if times are tough? The most important question is how do we teach them to value money but not be stingy or extravagant?
Telling children how much they can spend a month by giving them pocket money helps kids regulate spend. It also teaches them how much the money is worth to them in terms of everything they’d like to buy.
Kids don’t need to know exactly how tough their parents have it; it might create a mindset where they feel like money is something that must never be spent or spent sparingly. Kids must understand that everyone has a budget that they must stick to, including themselves (in terms of pocket money).
They must also not believe that if their parents are wealthy then money is nothing to worry about, that will lead to extravagant spend without a doubt. Whether parents are financially secure or having a difficult time must not be how children learn to value money. They must learn it from making decisions themselves on what they can purchase and learn to make sacrifices so that they can save for things that are expensive. If parents give in when asked for more money, children will never learn the value of money as they only need to ask to receive more money.
Having children do chores to earn their pocket money is also a great idea. This way children learn early-on how money is earned. They learn that they must do tasks to earn money and that they must spend that money wisely to make it last between paydays.
Basically, let children learn what money is and how it should be spent based on their own experiences and not from their parents.
Fixing a suitable amount of pocket money:
This method works well only if the pocket money they receive is also appropriate for their age and needs. Calculate a suitable budget by weighing their needs and expenses against the duration to their next payday.
If a child receives far more than he could ever spend, the lesson is lost and the child will never realize how a lack of money can cause restrictions.
If on the other hand, the child receives far too little for their needs they will think money is always going to restrict their actions and begin to live frugally.
Understandably, if times are very tough parents might not be able to give the child enough pocket money. In these instances, children should be encouraged to do part-time jobs so they can earn pocket money. This teaches them about how money is earned in a much more significant way than chores do. Note that most jobs are not suitable for children and only a few are such as being a library assistant, dog walker, receptionist or software tester. You get the idea, safe jobs that don’t put a lot of physical strain on children.