I think pocket money is a great method of educating your children in financing, but at what age should you start and under which condition?
I always tell my kids that I will do my best to take care of them, including using my money to that purpose. They don't need to worry about that.
We started giving an allowance to my oldest at age 7, and we increase it every year on his birthday. This money is really for him to learn with, not because he needs to buy things.
At first, he didn't know how to spend it. It piled up in his room for a while.
Then he started buying gourmet cake at $5 / slice. His money disappeared in a hurry. Now he is having a valuable lesson about the built-in scarcity of money.
I also tell him he has to share whatever he buys with the family that's with him. If I buy a sandwich for myself and my kids are hungry, of course I will share it, so I require the same of him.
I still place some restrictions on what he can buy, even though it's his own money. He may not buy a 6-pack of soda and drink the whole thing in a day, for example.
I am very careful to pay allowance without linking it to behavior. Regardless of whether he does his chores, or whether he behaves himself, he always gets his allowance. That's because I believe that paying for behavior is a really bad idea.
I've heard of an idea where a kid must put a portion of their allowance in savings, a portion goes to charity, and a portion they can spend. I haven't explored this; I'm just throwing it out there.
We are starting by using poker chips with our 4 year old. We reward him for doing well at preschool or finishing some homework. To watch TV, he has to pay 1 chip/half hour. He can also cash them on on a toy at the rate of $2/chip. 5 white chips get traded in for a red chip so this helps with learning addition.
He is learning about currency, how it accumulates, and how it depletes quickly. At the same time, we can encourage things we want him to do and discouraging things we don't, all the while leaving it up to him.
Update: as a slight improvement on this, we use bedtime as a time to go over the day, talk about how he did, and decide how many chips he gets for that day. It also helps my wife and I to not forget about it!
Proper money handling is a very important lesson in life, and the earlier you teach your child about that the better. As long as the child is old enough to understand the concept of money and the importance of saving then go for it. I bought my 4 year old son a money jar that counts the money as you put it in and he enjoys putting the money in, even though he doesn't understand what money is for yet.
I would agree with "as soon as they can count, add, subtract".
The one thing I would add: Include this money in savings, checking and credit lessons at an early age.
This is a checking account (less common these days, but still important).
Teach them young and early that a portion of money should be saved. Maybe put it towards car, college, etc. Learn early that a chunk of your money goes poof. Bye bye. Learn early how utterly important savings is.
Maybe even teach them credit shortly after they start getting money.
You want that truck? You have $5 and need 10... You can use this credit card (me) to "loan" you the $5 but you owe the bank $1 a week for the next 7 weeks. If you forget to pay me, there is a $1 late fee (You owe $2 next week) and another week owed $1 (more interest accrued).
Let them forget to pay and get late fee's (Deposited into savings, for future use). Let them learn not just to save... but how evil credit is and how important it is to stay on top of it.
This is how you make money, save money and lose money. I wish someone had done those things when I was younger. Would have saved me thousands in dumb choices.
As an educational tool, Monopoly is an excellent way to teach basic math and money-management skills.
Personally, I started receiving an allowance when I was 7, though I had been given money before that as gifts for various things.
My parents also made sure 10% was set aside for church, 10% for the piggy bank, and then the rest was mine to spend.
I believe as early as 5. But i feel you’ll know that they’re old enough the first time that they ask you for money to buy something. This is a certain indicator that they’re beginning to understand this concept. You’ll give them money, and they’ll spend it all on something that they want... This shows they need money to buy things.
It is important to give children a simple allowance to help them become comfortable with the notion of money...they will get money from relatives for their birthdays and other occasions and I think it is important to let them know what that means to have their own money...our children learn to swim and read at this age so why shouldn’t we be teaching them about understanding money as well...
As for conditions... The key in our family is tracking the money we give our kids. Without tracking, i’m just the bank of mom and dad throwing money to the wind. We tried using dry erase boards but that was too hard to manage. A free tool we’ve been using that works well for our family is called www.allowancemanager.com . It really helps us remember how much we’ve given to the kids - something I always seem to forget! Hope this helps! If anyone else has suggestions, I’d love to hear them.