How to teach kids about money

BIG SPENDERS: Pocket money is big business, research shows.
BIG SPENDERS: Pocket money is big business, research shows.

Mowing the lawns in the holidays was 10 bucks. Giving the car a scrub at the weekends, about half that. A paper round in the afternoons netted just enough for an I-remember-when $5 movie ticket. And selling drugs at lunchtime?

When one Wellington student was asked, after getting busted, why she was selling pot at school, the answer was simple: "Because, Mum, you don't give me enough pocket money." Pocket money used to be loose change from the nearest wallet, redirected to the safety of a piggy bank - or the corner dairy's till. Today, it's a fortnightly direct debit synced to a kid-friendly budgeting app on the brand new iPhone they "need" that allowance top-up for.

What's a parent to do in the face of sob stories from teen drug dealers - or just plain old puppy dog eyes? Less is more when it comes to pocket money, according to one financial adviser. "You are paying too much pocket money if your child rarely has to make a choice, or a painful decision. You have to keep it a little bit mean, because that's how life is," says Janine Starks, co-managing director of Liontamer Investments.

"Your kids are going to have to deal with other people being paid more than them all their life. Sometimes there's a good reason for that and sometimes we allj ust have to suck it up that a cigarette salesman earns more than a nurse on the oncology ward."

Pocket money certainly is big business. An AMP Financial Services survey from 2008 found 90 percent of Kiwi parents gave their children money, 56 percent of them handing out a regular allowance. Why? Because kids nag, and nagging works. Almost a quarter of parents of 17- and 18-year-olds admitted they gave their kids money "to stop them asking for it".

It sure seems our Kiwi kids have it pretty good. According to another bit of research, this time from a Cartoon Network survey of 1200 children and parents in 2011, New Zealand's youth had about $268 million a year to spend. Children aged between four and 14 got, on average, $10.26 a week from pocket money, paid work and gifts. That was a rise of more than a dollar over two years. In contrast, while the average pocket money haul in the UK last year was higher at $11.26, it had dropped almost $2 from 2011. The Halifax 25th Anniversary Pocket Money Survey found after a 529 percent increase over the past 25 years, the weather has turned and things are heading south in Old Blighty.

It seems even the young ones aren't immune to that beast we call the Global Financial Crisis. There's always stability in gender inequality, though - both local and overseas studies have found that around the house, girls are being paid less than their brothers. Once upon a time, there would be star charts and chore lists that every kid needed ticked off to earn dollars. These days, if you scour parenting websites and message boards, the message is: chores shouldn't equal money. Chores should be done because that's what being part of a household is all about.

But flick the (web) page, and you'll bump into the experts who say providing money for nothing is the worst thing you can do for a kid. It's no wonder parents get confused. "One of the things that sticks with me is a phrase I heard ages ago - an indulged teenager is just as miserable as a deprived teenager. Teenagers that have to struggle a little and work a lot ultimately have more self-esteem and better life skills than those who get handed everything on a plate," says John Cowan, creative producer of Auckland-based family advice organisation The Parenting Place.

Despite this, it's his "strong opinion" that pocket money should not be seen as compensation for doing the dishes or dragging the vacuum cleaner around occasionally. "The downside of any type of 'payment' systemis that the cooperation may evaporate when the payment stops. You can stop pocket money as a consequence for not doing their chores, and you can pay them extra for extra work, but in general try to avoid the understanding that they are being paid for doing things they should just do anyway. Otherwise they could legitimately say, 'I'm earning more from my after-school job, so I don't need to do my chores any more.'"

Duty can be wonderful and positive but often it is undervalued. Let your children learn its value."Even though the milk run is long gone and the paper run is heading the same way, a 2010 Department of Labour study found more than 40 percent of high school students have regular part-time work during the school term. The number of kids with after-school jobs jumps from a fifth of 11-year-olds to more than half of all 16- and 17-year-olds. The type of work depends on where they live - rural kids are twice as likely to work outside, compared to their counter-bound city cousins - but most are clocking in for less than 10 hours a week.

And that is the golden number when it comes to a teenager's life balance: despite NCEA now demanding a steady year of work, rather than a week of cramming before an exam, research has shown Year 11 students who spend between five and 10 hours working each week are likely to attain more NCEA Level 1 credits than those who don't.

Cambridge mother-of-two Louise Kerkhof would prefer her boys focus on school work than cash when the time comes. Treigh, 10, and Noah, four, are among those kids who pitch in around the house for their pocket money, just like their mum did when she was their age. There'll be no free ride here.

"Yes there are jobs that need to be completed and that is definitely what a household is all about, however, I don't feel [getting pocket money] deterred me from understanding this as an adult. We feel chores are more of an introduction, within reason, that things don't come for free - if you want something you have to work hard to get it," she says. For weekly pocket money of a dollar per year of age (capped at $50 a month), her sons' jobs include drying dishes, stacking the dishwasher, feeding the cat, making their beds and folding their PJs. Things are a little easier for the younger of the two. They are both encouraged to save at least some of the cash.

Money expert Starks says that whether it's tied to doing the dishes five nights a week or not, it is never too early to start dishing out pocket money. "How early is too early to start reading to a child? If you can sit in front of a three-month-old baby and read them a bedtime story, then you can start sticking coins in the piggy bank and telling them what the balance is."

Just like learning to read, where the words might be a blur to begin with, over time the coins and talk all start to make sense. Learning comes from watching, hearing and doing. It all works to build a habit of understanding money and Starks believes that, along with comprehending words, it is one of the most important life skills children need to master.

"When it comes to money I hear all sorts of ludicrous statements, like: 'A five year old has no understanding of money so there is no point talking about it too early.' I've seen five-year-olds make pikelets and recite the names of 10 dinosaurs. At what point did someone decide money was a bit too complicated for these little sponges? Financial literacy is one of the greatest life skills you can teach a child. Don't ever value it as less important than learning to read."

Along with the weekly banking programmes that still play a part in many schools timetables (remember your old Post Office Savings Book?), more than 250,000 school-aged children have taken part in ASB Bank's award-winning GetWise financial literacy programme since it started in 2010. Starks is a fan of getting kids talking about money in the classroom - but she has a warning for complacent parents. "Anything that teaches a habit is good, but never think of money education as being like the 'sex talk' - the school has not let you off the hook by setting up a school banking system."

And like the inevitable conversations that can stem from learning about the birds and the bees, John Cowan says kids compare everything - especially pocket money. His advice to parents: be strong, be reasonable and remember who the adult is. "Kids are very aware of how well off they are in comparison with their mates - they could probably name everyone in their class with a better phone than them. They feel the peer pressure and then they want to pass that on to us [with] phrases like, 'Everyone else is' and 'I'm the only person in my class who...' We need to be the big person; we shouldn't be bowing down to pressure from a bunch of 13-year-olds." 

John Cowan: "Duty ... is undervalued. Let your children learn its value.''
John Cowan: "Duty ... is undervalued. Let your children learn its value.''
Janine Stark: "Keep it a little bit mean.''
Janine Stark: "Keep it a little bit mean.''

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