Good intention, but traditionally not a successful concept. How are the kids supposed to know what to do with the money they’re given?
Instead, try this.
Split the money for them into three pockets:
Spend pocket (40%)
Spend as usual now (lollies, toys etc.), pay for anything immediate. The key here is to allow them to buy whatever they want with this money. They are in charge of it. If they spend it all at once, they will have none left. Slowly introduce the basic save-spend conversation. Kids will learn the spending fundamentals fast.
TIP: Point out to them that once the money is spent, it’s gone forever.
Save pocket (30%)
Save for something big in the shorter timeframe, spend later.
Teaches them the concept of saving and having more to spend in near future. A more advanced version of this allows them to spend only half of what they saved, always keeping some money in the account.
TIP: Good old piggy works a treat here. Can be placed in their room. Point out to them that if they resist the temptation of spending all now, they will benefit from having visibly more later.
Invest pocket (30%)
Put away and invest to benefit from in 10 + years’ time (ideally buy and hold and never sell). This account should only allow only type of one transaction – buy. It can form an education plan, a property deposit plan or anything long term.
TIP: Must be set up as Automatic Direct Debit. Point out to them that every dollar saved and invested will produce income for as long as we keep it.
This approach teaches kids to split their income purposely for different reasons, just like the grown-ups do when they get paid. Don’t get lost in options, the key is to pick one you can stick with or seek our professional advice
Maybe your re-evaluating your own saving habits?
Article by Michal Bodi | Senior Financial Planner
General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.