Old Mutual Wealth Financial Planning Coach Sharon Moller says that children have a better chance at developing positive financial habits when introduced to money at a young age.
Moller says that children as young as three and four have an inherent need to learn and be independent, and it is no different when it comes to earning cash. "The earlier they can understand that money can be earned and saved, the sooner they will learn about how money works. They will also begin to understand the benefits of delayed gratification by working towards an important money goal," she says.
By giving children their own money, parents will observe how they save and spend, says Moller. In turn, they create an opportunity to teach kids the basics of money management principles. "One of the ways parents can help set their children up for financial success is to implement a well-structured system of earning pocket money," she adds.
How much pocket money should parents give their children?
Moller's advice is that the child's age should determine the amount, what makes financial sense for the family, and what tasks can be done at home to earn pocket money. She says that these tasks should be chosen together with the child and hopefully includes a task that they enjoy doing.
"Pay the children for having done something to the best of their ability. Let them choose something they feel is achievable and realistic for their age, and ask them what monetary value they would place on these tasks. Encourage them to stretch themselves a little and to step outside of their comfort zone, but always ensure that they decide what they are capable of doing," Moller says.
Letting children help around the house with age-appropriate chores that will earn them a couple of Rands is a good start, says Moller. "Start off giving them cash. Keep little savings jars with money allocated for different things such as rainy-day savings, saving for something special, and spending money.
"When children are older, consider opening up a bank account and letting them transact like adults using e-banking and other online tools," Moller further suggests.
If the predetermined outcome as agreed is not achieved, Moller says money should be withheld. However, she warns against withholding cash as a means of disciplining children for “frowned upon” behaviour. "Doing so could leave the child with an unhealthy relationship with money that might be carried over into adulthood, precisely the opposite of what this approach aims to achieve," she says.
Moller concludes by saying that implementing an earned-pocket money system that positions parents well to help their children curb damaging money habits, will set up kids for future success.