The right way to spend: teaching your child how to deal with money

By Beate Kaufmann Oct 20, 2011, 3:06 GMT

Berlin - Thanks to sweets, toys and mobile phones, children are familiar with spending money. But not all children can make do with the pocket money they're given. The right attitude to spending money can be taught early and the best place to find good role models is in the home.

'Children learn through observing,' says Christine Steinle from the Catholic charity, Caritas. 'They see how their parents deal with money and how mom and dad spend their money.'

Tanja Beller from the Federal Association of German Banks agrees: 'The family is where children learn that money is needed to live. They often hear that money must be earned by going to work.'

Receiving pocket money is the first big step in a child's financial education. The right time to give a child money is when they begin going to school. 'In order to understand money you need to know how numbers work,' says Heidemarie Arnhold from a German parental aid organisation. A child not yet attending school will not be able to deal with money.

Arnhold disagrees with advice to give very young children money. 'You often discover marketing companies are the source of that suggestion,' she says. That's because children are a valuable source of income for businesses. In Germany, for example, six to 13-year-olds have about 2.2 billion dollars to spend each year, according to one study. Arnhold says it's a common strategy to try to get this age group to spend their cash on certain brands.

In general pocket money is important for a child's personal development.

'Everyone has to learn how to spend money and it's good to start that process early,' said Germany's family minister Kristina Schroeder in an interview.

But how much money should parents give their child?

The deciding factor is the parents' economic situation, according to Charlotte Cary von Buttlar from Germany's family ministry: 'You can also orientate yourself on your child's circle of friends or raise the subject at the next parents' meeting.'

Germany's child protection services advise giving a six- to seven-year-old child between two and 2.50 dollars on a weekly basis.

'Children up to the age of 10 can rarely manage to plan on a monthly basis,' says von Buttlar.

'Try also introducing a few rules along with pocket money,' recommends Heidemarie Arnhold. 'In return parents must accept what their child buys - even if it's a mistake.' Children should be free to spend their money and parents should never use it to punish them.

Choosing the right time to open a bank account for your child also depends on your child's personal situation.

'Basically parents must give their permission for their child to open a bank account,' says Tanja Beller.

There are ways that your child can fall into debt, such as over spending on mobile phones and the internet.

Christine Steinle says it's important in this case for parents to set a good example: 'How does the household deal with credit, payment plans, the internet and mobile phones? Do mama and papa have their budget under control?'

Parents should set rules on how to deal with the various forms of payment that exist. It's also important to discuss the matter with your child and make it clear he or she should read the fine print on any purchase agreement.