Don’t forget covering this fundamental topic when you conduct money lessons with your children.

Our attitudes towards money are developed starting in childhood. How our parents dealt with money influences our future money behaviors.

In our current times, parents are more aware of the need for financial education to begin in childhood. However, most of the time parents focus on what can be done with money that children have received (i.e. saving, spending, budgeting, and even investing).

In this article, we take a step back and look at an even more fundamental topic for parents to cover with their children, which are the 4 different ways children receive money.

By specifying these 4 ways, it helps give young minds more clarity and understanding on how and when money “appears”.

This conversation would also help your child establish concepts they can build on as they explore money topics such as budget planning, expense planning, and planning long-term goals of buying something they desire.

#1. Cash Gift

As Malaysians, the concept of a cash gift is applicable to even the youngest of babies.

Culturally, it is a common understanding for Malaysian children receive cash gifts during festivals in the form of duit raya or angpao. Birthdays and other special milestones are also celebrated with a cash gift or two snuck into your hands by kind relatives. And, not forgetting being rewarded with cash gifts upon achieving good results in school exams.

Parents have an opportunity to sit down with their children to discuss the significance of the event that resulted in a cash gift being received. It is also an opportunity to cover multiple topics such as:

  • Feelings of gratitude, appreciation, thanksgiving, e.g. why we should feel them and how to express them
  • Generosity, e.g. “will you do the same thing in future to others?”
  • Etiquette, e.g. “why don’t we open cash gifts in front of people?”

Parents play a big part in molding a child’s money attitude towards a cash gift. Cash gifts are a surprise since nobody knows exactly how much will be received. As such, it’s a good coaching opportunity for parents to have conversations with your child about how the money should be spent. These conversations should evolve as your child gets older and gains more maturity, gradually allowing them more say in the final decision.

#2. Earned Money

Earning money is usually fun for children, especially young kids. The novelty of discovering trading effort for money is exciting.

We’re talking about children earning money at home by fulfilling chores or simple tasks set out by parents. However, this is also applicable for teenagers or young adults taking their tentative steps in the working world.

The capability to earn money is very empowering for any person at any age. It gives a sense of self-sufficiency and boosts self-confidence. There’s also the sense of accomplishment upon receiving one’s earnings.

There are many conversations (gradually evolving to match your child’s age) that should be held around earned money, such as:

  • How payment correlates with time, skills, and effort
  • Establishing boundaries around resources, e.g. time
  • Helping your child understand and rank priorities
  • Discussing work ethics, standards, and attitudes
  • Explain the similarities to adult working lives

Do take care to give wages which are fair. As parents, you may want to kindly reward your child more because you can. However, overpaying can give children the wrong idea on what it takes to be paid well, and this can create a bad attitude when they enter adulthood.

#3. Dole

Doling out money means giving money when asked. As you can already imagine, there are several disadvantages of doing this. However, that does not mean this should never be used.

This method is suitable for young children who are not yet familiar with distinguishing money denominations or counting. It’s a good way to introduce the concept of money to them, especially if you use cash and count it out with them.

Parents who practice this method have better control over the things your children want to spend on since you determine the yes or no. However, it can lead to children learning to lie to or manipulating their parents into buying things they may not necessarily would buy otherwise.

It can also rack up expenses on your end as parents can easily lose track of how much they are giving to their children. Consequently, children also do not learn about tracking expenses or budgeting. They may form an impression that parents have an inexhaustible mountain of money sitting in the bank.

Being on the dole can be partnered with the other 3 ways highlighted in this article, and it should not be the primary way your children get their money.

#4. Allowance

In general, an allowance is a lump sum you give to your child at regular intervals for their spending. Guidelines for allowances vary from family to family.

For instance, you can choose to make it a daily allowance rather than a monthly allowance. You can also discuss rules on what the allowance can or cannot be spent on, and what are payments they should direct to you instead (e.g. school fees).

Start with a small amount at a more frequent interval. Ensure it is an amount that can cover basic expenses your child encounters in their day. For example, if they only need to spend on food at the school canteen during recess, find out how much it costs for a basic meal. Consider adding on a little bit more to give them a chance to practice saving or discretionary spending on something fun. Gradually grow the amount and the interval as your child proves their maturity in handling money.

You can start giving an allowance when your child can distinguish different cash denominations, is comfortable counting, and has spending opportunities. Practicing through role-playing activities at home beforehand can help both you and your child feel more confident in transacting with cash.

Now, giving an allowance isn’t just about handing over cash and washing your hands till the next payday. Parents play an important role in intentionally engaging children in money conversations to learn how they are handling the money. There are many motivations behind having this conversations, including:

  • Learning what your child spends on
  • Adjusting the allowance as needed
  • Encouraging budgeting, planning, saving, goal-setting
  • Help them avoid money traps (e.g. scams)
  • How does money/spending relate with feelings
  • Practicing prudence (i.e. needs vs wants, generosity, frugal, stingy)

The disadvantage of an allowance is the sense of entitlement your child may develop. To counter this, do include your child in family money conversations so they are aware that money isn’t from an inexhaustible supply somewhere. Keep them well-grounded – if money is tight, this should not be a surprise to your child and they should understand a reduction in their allowance. Keep on communicating both ways.

Conclusion

Talk to your child about the 4 ways they can get money and discuss how these ways occur in their lives. What do they think are advantages and disadvantages of each? Do their thoughts surprise you?

One thing for sure is that no matter how your child receives money, you should engage your child in money conversations to discuss thoughts, feelings, and guide them towards wiser money decisions.

 

Are there other ways children receive money? Let us know your thoughts.

 

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