By Dr. James Lane, Director of Education at Pora Ora, a 3D virtual world for children.
We may be living in a financial crisis riddled with debt, but if we learn from the mistakes that we have made, hopefully our children will not have to follow in out credit crunched footsteps.
Who would have thought that pocket money, which is often predestined to be spent on 'pick and mix' sweets, comic books, trading cards and the latest playground craze, would be so important?
Pocket money can play a key role in introducing your child to the financial world, and can be a fantastic way of ensuring a positive relationship with it in the future. Children need to understand the value of money, where it comes from and where it goes when they have spent it.
Money saving expert Martin Lewis argues that borrowing money has lost its stigma. Whilst there are many valid reasons to borrow - such as for higher education or buying a house, debt should not always be seen as an enabler. Being a debt binger who relies on their plastic to fund an unsustainable lifestyle will only lead to misery.
Martin Lewis makes the highly valid point that children need to learn the cycle of money. He suggests the best way to do this is to take them to a supermarket. At the checkout ask them why they think the sweets and chocolate are placed so near the till, then explain to them that it is “a supermarket’s job to make money, so they put the sweeties there so you won’t forget to ask mummy or daddy for them; that way they might make a little bit more money,".
By educating children into understanding that there are many companies out there who spend a great deal of money to entice them to spend, lets children see the bigger picture.
There are many questions surrounding pocket money, such as when should children be given pocket money? Whilst this can be a personal preference, around the age of 5 or 6 years is a good age to start.
Introducing the concept of the value of money will complement what your child will be learning in school in terms of their maths education. Children will be able to see a connection between what they have learned in school with what happens outside of school.
The next question is how much money should the child receive? Too much and many of the lessons that we as parents hope they grasp will fly out of the window. We want children to understand that they will sometimes have to put money aside to save up.
The amount of money for a 6 year old should be quite modest. We are not attempting to turn them into the next Alan Sugar just yet, we are simply trying to develop an understanding of the value of money and how much items cost.
In addition, we want them to discover the persistence and determination required to save up for something they really want, helping to support the feeling of satisfaction that comes from working towards and achieving a goal.
Make sure that you never just give your child pocket money, ask them what they are going to do with it. When they want to purchase something, ask them why. This will help children to develop a practical attitude towards their spending and also learn to weigh up the pros and cons.
Pocket money is a great way of introducing children to learn financial literacy from an early age. Giving children the opportunity to earn more money through additional chores will help children begin to understand the financial benefits that come from hard work. Furthermore, it is imperative that we also teach our children about their role as a consumer. Advertisers and marketers have one aim – and that is to sell. Teaching children to be critical and realistic about advertising and marketing as they get older is important.
Over the last 20 years we have moved to a cashless society, where transactions are completed by plastic and credit is easier to come by. We can make purchases online, at any time. Now more than ever, the opportunities for consumption are endless. We need to ensure that our children understand that cashless transactions of any sort still involve money and that if we do buy something on a credit card for example, we will still have to repay the money.
While it’s great to talk to your children about money in this way, always ensure it is done in a balanced way – we don't want to burden them. Gradually introduce financial topics and be willing to answer questions. In Pora Ora children can earn roobles through playing games. Children soon learn that if they want to redecorate their Pora Pad, change their outfit or buy a magic potion, they need to have enough roobles. If they don't then they can't have it. It's a simple but worthwhile lesson.