Let’s start with this short quiz to see where you are in this journey to help your kids develop good financial habits.
1. How do your kids get spending money?
a. Children don’t need money. An adult is generally available to spend for them
b. I give them money when they need it
c. Allowance/Pocket money
2. How do you keep track of your children’s spending?
a. She can spend on whatever she wants. I give her total freedom
b. I monitor her spending like a hawk
c. She keeps track of her spending and I review it with her regularly
3. Where do your kids keep their money?
a. With me
b. A piggy bank, which they keep
c. A bank account. I review the bank statement with them regularly
4. Do you talk to your kids about money?
a. What’s the rush? There is plenty of time to worry about money when they are adults
b. Sometimes – I would like to, but I don’t know what to say
c. Regularly – children should learn about money
5. You decide to set up an investment account for your
teenager. You:
a. Pick the best companies to invest after careful research
b. Let your child pick the companies and manage the investment account
c. Do some research together and jointly decide what to buy
6. What mindset do you want your kids to have about money?
a. Spend it while you have it
b. Money can’t buy happiness, but more money means more success
c. Money is an important tool, so it should be managed carefully
Scoring: Give yourself 1 point for every A you have selected, 2 points for every B you have selected and 3 points for every C you have selected. Calculate the total points.
If your total points are:
15–18: Congratulations! You are an Involved Parent when it comes to teaching your kids about money. You are well on your way to helping your children develop good financial habits and building a good attitude towards money. You should use the tips and activities in the book to increase your kids’ money management abilities and confidence.
10–14: Great! You are an Aware Parent when it comes to teaching your kids about money. You understand the importance of instilling good money habits in your children. You should use the techniques described in this book to talk to your kids about money and give them more tools to practise money management.
6–9: You are a Hands-off Parent when it comes to teaching your kids about money. As we have mentioned earlier in the book, research shows that money habits and attitudes develop at an early age. You have taken the first steps to helping your children develop good money habits and attitudes by reading this book and taking this quiz. The next few chapters discuss activities to help you raise financially smart children.
Now that you know where you are in your child’s financial education journey, let’s start with the first tool to give your child hands-on experience: pocket money.
Why give your child pocket money
Can you really teach your child how to play football without a ball? Similarly, it’s hard to teach a child about money and the value of money without giving them any money. Letting a child handle a small amount of money is a simple way to inculcate good money habits.
Pocket money helps kids learn and practise invaluable life lessons of saving, spending, budgeting and giving (donating). When kids start learning these lessons between the ages of 6 and 10, it has a threefold benefit:
1. Starting young helps drive the message and instil good financial habits.
2. Small mistakes will lead to big learnings.
3. Handling money will build confidence.
Research shows that pocket money with parental control and explicit advice from parents increases the propensity to save by 16 per cent and the saving amount by 30 per cent.
A primary goal of giving kids pocket money is to teach them the balance between saving and spending. Saving is about discipline, delayed gratification and self-control. ….
When to start giving pocket money
The short answer: Between ages 6 and 10.
The long answer: By age 6 or 7, kids can understand the concept of money. They understand that you need money to buy chocolate or cake or toys. Most kids will know when something costs a lot of money (a fancy toy, for example) versus when something costs less money (candy or lollipop).
While they may still have abstract ideas about the value of money, they have a general sense of money. If your child is older and you have not been giving pocket money, start now. Get your child into the habit of receiving some money every week, and being accountable for the money.
How much pocket money to give
This will vary based on where you live, what school your kids go to, and your income. But in general, for younger children, from age 6 onwards, we recommend giving between ₹50 and ₹100 per week. At this age they can track their pocket money as they have learnt basic addition and subtraction in school. Give them opportunities to spend the money, maybe at the school canteen or the stationery or grocery store. The kids will learn how much items cost and how to collect change correctly.
You can increase the amount as they grow older. If you aren’t sure how much to give, you can include your kids in the decision-making process. If you know their friends’ parents, you can decide the same amount for all the kids.
Excerpted with permission from Piggy Bank to Portfolio: How to Raise Financially Smart Kids by Binal Gandhi and Soneera Sanghvi, published by Juggernaut Books