The sooner we learn about money, the more time we have to develop solid financial habits. An pocket money is a good opportunity to teach kids how money works. Over at the Penny Hoarder, one father explains how he uses an "allowance contract" to teach his kids to negotiate salary.
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Not every parent is a fan of giving pocket money, but it can be a useful tool for learning about money. In an interview, dad Bob Helbig describes his system for using pocket money contracts to teach his kids about negotiating, working for an employer, saving for the future and even donating money to charity. It's the same idea as just giving them pocket money, really, but it's a lot more detailed and implemented from a personal finance perspective:
"All requirements must be met to receive an allowance of $5 weekly, to be paid no later than the last Sunday evening of each month," read the contracts. "Failure to do all of these things may result in withholding of said allowance."
From there, the contracts lay out the specifics of what each child is responsible for around the house, how their allowances work, and who gets stuck with the most dreaded household chores. They also incentivise good money-saving habits through a creative, 401(k)-like matching system.
Helbig says he matches a portion of the kids' saving every month. He also urges his kids to negotiate "cost of living adjustments" and uses that as an opportunity to teach them how to negotiate. It should go without saying, but obviously, your relationship with your kids is a lot different than an employer-employee relationship, so there are some limitations to this idea. However, that's kind of the point, to teach kids how money works in the real world. To read more about Helbig's system, head to the post below.
The Simple Way This Dad's Teaching His Kids About Money and Negotiation [The Penny Hoarder via Reddit]