Where does money come from?

Unfortunately, money is not something that grows on trees or can just be withdrawn with a debit card without limits.  But how can this be explained to your children?

Giving an allowance

Giving an allowance is a good method of teaching this concept.  If you would like your children to come to a realisation at an early age that money is earned through work rather than freely given, then various tasks can be assigned to them and it can then be given as a reward.

5-7 year old children should only have a small number of chores, such as setting the table and taking dishes into the kitchen after meals.  They could also practice tidying up after themselves by putting shoes and toys in their place.  Older children could complete tasks such as washing the car or tidying their room.

Earning money

At an early stage, you can explain to your children that money earned by working goes into that the bank and some of that money is then taken out so that things can function on a daily basis. This includes costs like rent, food and clothes. It is also a good idea to explain to your children the benefits of ensuring that there is some money left over every month, which can be saved for luxuries, such as holidays at a later date.

Where money is earned, it is useful for older children to have explained the difference between gross and net pay.  This can be illustrated simply using €10 worth of coins and proportioning it into amount paid as tax, amount paid into pension and amount taken home.

Lending money versus earning money

It is important to explain this difference to your child.  Earning money is a reward for work carried out whereas borrowing money involves having to pay it back at a later date, usually with interest.  If your child asks for a loan, set up a schedule for repayment and include a slight interest if appropriate.  This will enable your child to be better equipped in the future when credit cards or bank loan may be required.