Sara is a Finance Manager in a big MNC corporation in Chandigarh. She has a 9 year old daughter named Danisha. Last week Danisha went to a friend’s birthday party and came back gushing about a new Barbie Doll House. Not surprisingly, Danisha has been pestering Sara to get the doll house for her. Sara tried to avoid buying the gift for her daughter as it seemed like a frivolous expense. But finally she gave in to her daughter’s demands. Though she has already made the purchase, Sara wants to know why she should be buying stuff for Danisha, and also give her a weekly pocket allowance.
Most parents give weekly allowances or “pocket money” to their kids, without knowing why. It seems like the thing to do when everyone else is giving weekly allowances to their kids. It is not a bad idea actually. The origin of this concept lies in a desire to teach the basic principles of personal finance to little children, so that they can imbibe those principles and become responsible adults. But what really happens?
If you ask your children what they spend their money on, you will not be surprised by the answer. Typically, kids spend their pocket allowance on snacks in the school canteen, candy and other similar stuff. Not only is this against the basic goal of giving pocket money to your kids, it is also detrimental to their health. Should your child really be spending his/her pocket money on chips, momos, pizza, burgers etc? Think about it. Are you teaching anything useful to your child by giving him/her money to buy snacks?
Useful Tips Memsaab brings you useful tips on how to educate your child about personal finance, using the weekly allowance as a tool.
The Purpose: If your child can pester you into buying whatever he/she wants, what is the point of an allowance? It is very important to tell your child that the purpose of giving an allowance is that he/she should manage finances independently. So all personal gratification items like toys etc should be bought out of the allowance. This basic principle should be understood and mutually agreed upon before you start paying out the allowance.
Savings: There is no education of personal finance without the concept of saving. So encourage your child to save at least 10-15 % of the allowance every week. The saved up money can then be used to buy an expensive toy etc. If you can convince your child to start saving, you will find him/her setting goals and achieving them. Also, an item bought out of saved allowance will give a lot more joy than having it bought by the parents. Further, the child will also be careful about handling such an item since it has been bought out of savings! What a lot of lessons!!!
Weekly Meetings: Sit down with your child at the end of every week. Discuss the money spent during the week, and set goals for the next week. Do not crticize overtly. But be firm that you shall not be buying any gifts or toys. Be a friend and wath your child grow into a responsible and mature adult. Good Luck!!!